LEO. Svensson/ European Economic Review 46(2002)771-780 The advantages of an optimal specific targeting rule like(2.8)are:(1)With pub- lished forecasts of the target variables, it is possible to verify whether the target rule is followed, since the targeting rule is relatively simple. Then commitment to the targeting rule is possible. (2)The optimal specific targeting rule results in an optimal outcome, corresponding to commitment in a timeless perspective. (3)The specific targeting rule is relatively robust, in that it only depends on the marginal tradeoffs between the target variables, that is, the derivatives of the loss function and the aggregate-supply elation with respect to the target variables. (4)The specific targeting rule is independent of judgment, in the sense of judgment not entering the targeting rule explicitly, but still allows the incorporation of judgment, since judgment enters in the forecasts A potential disadvantage, however, is that a specific targeting rule, in order to be ptimal, depends on the precise marginal rate of transformation, the dynamic tradeoff, between the target variables. Therefore, it is not robust to different models of the aggregate-supply relation(Svensson(2001b)compares the optimal specific targeting rule for a backward-looking and a forward-looking model). Thus, it is clearly less robust than a commitment to a general targeting rule(but still much more robust than a commitment to the optimal instrument rule) Specific targeting rules are the Euler conditions corresponding to optimizing monetary policy. I believe it is better to describe and prescribe inflation targeting as goal-directe optimizing policy than as following a mechanical instrument rule. Monetary policy by the world,'s more advanced central banks these days is at least as optimizing and forward-looking as the behavior of the most rational private agents. I find it strange that a large part of the literature on monetary policy still prefers to represent central-bank behavior with the help of mechanical instrument rules. The literature long ago ceased representing optimizing households and firms as following mechanical consumption and investment functions, and instead represents their behavior by Euler conditions, optimal first-order conditions. The concept of general and specific targeting rules is designed to provide a discussion of monetary policy rules that is fully consistent with the optimizing and forward-looking nature of modern monetary policy. From this poir of view, general targeting rules essentially specify operational objectives for monetary policy, and specific targeting rules essentially specify operational Euler conditions for monetary policy. In particular, an optimal targeting rule expresses the of marginal rates of transformation and the marginal rates of substitution between the target variables in an operational way. I hope there will be more research along these lines in the future 3. Conclusions Inflation targeting is an active and lively research area. It is also an area where academic researc ch matters for practical policy. Inflation-targeting central banks are eager to apply new research findings, and the distance between research and practice is very short. There is considerable cooperation between academic researchers and778 L.E.O. Svensson / European Economic Review 46 (2002) 771 – 780 The advantages of an optimal speci@c targeting rule like (2.8) are: (1) With pub￾lished forecasts of the target variables, it is possible to verify whether the target rule is followed, since the targeting rule is relatively simple. Then commitment to the targeting rule is possible. (2) The optimal speci@c targeting rule results in an optimal outcome, corresponding to commitment in a timeless perspective. (3) The speci@c targeting rule is relatively robust, in that it only depends on the marginal tradeoNs between the target variables, that is, the derivatives of the loss function and the aggregate-supply relation with respect to the target variables. (4) The speci@c targeting rule is independent of judgment, in the sense of judgment not entering the targeting rule explicitly, but still allows the incorporation of judgment, since judgment enters in the forecasts. A potential disadvantage, however, is that a speci@c targeting rule, in order to be optimal, depends on the precise marginal rate of transformation, the dynamic tradeoN, between the target variables. Therefore, it is not robust to diNerent models of the aggregate-supply relation (Svensson (2001b) compares the optimal speci@c targeting rule for a backward-looking and a forward-looking model). Thus, it is clearly less robust than a commitment to a general targeting rule (but still much more robust than a commitment to the optimal instrument rule). Speci@c targeting rules are the Euler conditions corresponding to optimizing monetary policy. I believe it is better to describe and prescribe in ation targeting as goal-directed, optimizing policy than as following a mechanical instrument rule. Monetary policy by the world’s more advanced central banks these days is at least as optimizing and forward-looking as the behavior of the most rational private agents. I @nd it strange that a large part of the literature on monetary policy still prefers to represent central-bank behavior with the help of mechanical instrument rules. The literature long ago ceased representing optimizing households and @rms as following mechanical consumption and investment functions, and instead represents their behavior by Euler conditions, optimal @rst-order conditions. The concept of general and speci@c targeting rules is designed to provide a discussion of monetary policy rules that is fully consistent with the optimizing and forward-looking nature of modern monetary policy. From this point of view, general targeting rules essentially specify operational objectives for monetary policy, and speci@c targeting rules essentially specify operational Euler conditions for monetary policy. In particular, an optimal targeting rule expresses the equality of the marginal rates of transformation and the marginal rates of substitution between the target variables in an operational way. I hope there will be more research along these lines in the future. 3. Conclusions In ation targeting is an active and lively research area. It is also an area where academic research matters for practical policy. In ation-targeting central banks are eager to apply new research @ndings, and the distance between research and practice is very short. There is considerable cooperation between academic researchers and