.S. economy estimated in Rotemberg and Woodford (1997). Our main substantive finding is that low and stable inflation together … with stable interest rates can be achieved by letting the funds rate respond positively to inflation while also responding … expected utility to the representative household. Furthermore, when the funds rate responds to inflation only with a delay, due …

criterion of the kind discussed in familiar proposals for flexible inflation targeting.' Optimal rules, however, require that … do not place nearly as much weight on projections of inflation or output many quarters in the future as occurs under the … current practice of inflation-forecast targeting central banks …