The Fed – Considerations Regarding Inflation Ranges

August 2020

Considerations Regarding Inflation Ranges

Hess Chung, Brian M. Doyle, James Hebden, and Michael Siemer

Abstract:

We consider three ways that a monetary policy framework may employ a range for inflation outcomes: (1) ranges that acknowledge uncertainty about inflation outcomes (uncertainty ranges), (2) ranges that define the scope for intentional deviations of inflation from its target (operational ranges), and (3) ranges over which monetary policy will not react to inflation deviations (indifference ranges). After defining these three ranges, we highlight a number of costs and benefits associated with each. Our discussion of the indifference range is accompanied by simulations from the FRB/US model, illustrating the potential for long-term inflation expectations to drift within the range.

Keywords: forward guidance, monetary policy.

DOI: https://doi.org/10.17016/FEDS.2020.075

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Last Update:
August 27, 2020

Source: Federal Reserves

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