The Non-Linear Phillips Curve and Inflation Forecast Targeting
Preprint
- 1 January 1999
- preprint
- Published by Elsevier in SSRN Electronic Journal
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.Keywords
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