Survey_Wieland_2002

Abstract

The estimates were obtained using quarterly data on the CPI excluding food and energy and the civilian unemployment rate from 1960:2Q to 1993:4Q. The author uses 12 lags of inflation and 2 lags of the unemployment rate as well as the oil price as supply shock proxy. To begin, I consider a central bank that pursues a strict inflation-targeting strategy as defined by Svensson (1997a). Such a central bank conducts monetary policy so as to minimize expected squared deviations from its inflation target ??. 10 This loss function can be decomposed in two terms indicating the possibility of a tradeoff between the conditional expectation of inflation deviations from target and the conditional variance of inflation.