The Non-Linear Phillips Curve and Inflation Forecast Targeting
Bank of England Working Paper No. 98
43 Pages Posted: 25 Sep 1999
Date Written: 1999
Abstract
This paper extends the Svensson inflation forecast targeting framework with a convex Phillips curve. An asymmetric target rule is derived, which implies a higher level of nominal interest rates than the Svensson forward-looking version of the reaction function popularized by Taylor. Extending the analysis with uncertainty about the output gap, it is found that uncertainty induces a further upward bias in nominal interest rates.
JEL Classification: E52, E58
Suggested Citation: Suggested Citation
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