-market economies. The chapter discusses the history, macroeconomic effects, theory, practice, and future of inflation targeting …"Inflation targeting is a monetary-policy strategy that is characterized by an announced numerical inflation target, an … implementation of monetary policy that gives a major role to an inflation forecast and has been called forecast targeting, and a high …

"In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating … stabilize price movements in the flexible price sector. Also, in the presence of financial frictions, stabilizing core inflation … frictions a welfare-maximizing central bank should adopt flexible headline inflation targeting-a target based on headline rather …

standard New-Keynesian model, and may even inflate the equity premium. Second, asset-price movements improve the inflation …-output trade-off so that average output can rise without increasing much average inflation. Finally, a strict inflation …-targeting policy may result in lower average welfare than a more flexible inflation-targeting policy, which instead increases the …