Question

Because inflation targeting is ________, policymakers must ________. forward looking; forecast inflation backward looking use adaptive...

Because inflation targeting is ________, policymakers must ________.

forward looking; forecast inflation

backward looking use adaptive expectations

Backward looking assume the previous period's inflation rate will continue

policy neutral; maintain a hands-off approach to policy

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Answer #1

Option A is correct

Because inflation targeting is forward looking, policymakers must forecast inflation.

Inflation targeting is concerned with what the future inflation is going to be and based on that the policy makers must forecast inflation in their monetary policy meetings.

Options B and C are incorrect because inflation targeting is forward looking, not backward looking.

Option D is incorrect because inflation targeting is not policy neutral and hands-off approach to policy cannot be follwed. The policymakers must directly involve and be proactive in forecasting the inflation.

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