Research Seminar in Economics University Hohenheim

Research Seminar in Economics

May 13, 2026

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Zeno Enders, University of Heidelberg

Inflation Forecast, Targeting Revisited 
(with C. Conrad, and G.J. Müller)

Under inflation forecast targeting, central banks such as the ECB adjust policy to keep expected inflation on target. We evaluate the ECB’s inflation forecasts: they are unbiased and efficient but contain little information at forecast horizons beyond three quarters. This suggests a quick impact of monetary policy on inflation, which calls for short target horizons. This is in line with standard theory. In a New Keynesian model with transmission lags, inflation forecast targeting is indeed effective in stabilizing inflation—provided there is no forward-looking behavior—though the information content of forecasts is unrealistically high. In the presence of forward-looking behavior, the information content declines because monetary policy becomes more effective in meeting the target, but inflation is best stabilized by targeting current inflation.