LEO. Svensson/ European Economic Review 46(2002)771-780 Except for research on the beneficial consequences of central-bank independence and low inflation, and academic advice by Charles Goodhart on the incentive structure for the Governor of the Reserve Bank of New Zealand, inflation targeting was introduced in early 1990s without any preceding specific academic research on inflation targeting The credit for the initial rise of inflation targeting goes mostly to insightful central-bank and finance-department officials rather than academics. Once inflation targeting was introduced in the mid 1990s, though, an increasing number of academics started to do research on the topic, and by now there is large volume of accumulated research, and the number of papers and books on inflation targeting is growing fast How should we define inflation targeting? I believe it is useful to emphasize three characteristics:(1) There is a numerical inflation target, in the form of either a point target (with or without a tolerance interval) or a target range. This numerical infla- tion target refers to a specific price index. Achieving the inflation target mary objective of monetary policy, although there is room for additional secondary objectives, as we shall see. There is no other nominal anchor, like an exchange-rate target or a money-growth target.(2)The decision-making process can be described as nfiation-forecast targeting,, in the sense that the central banks inflation forecast has a prominent role and the instrument is set such that the inflation forecast conditional in the instrument setting is consistent with the target. This does not exclude that output and output-gap forecasts also enter in an essential way, as we shall see. (3) There is and accountability. The central bank is accountable for achieving the inflation target and provides transparent and explicit monetary-policy reports presenting its forecasts and explaining and motivating its policy However, these days many countries call themselves inflation targeters without seem- g to take the inflation targeting very seriously. Indeed, an institutional commitment to inflation targeting appears essential for inflation targeting to have much meaning Such an institutional commitment involves(1)a clear(preferably legislated) mandate for a monetary policy directed towards low inflation,(2) central-bank independence ("instrument independence", meaning independence in setting the monetary-policy in- strument, in some cases also independence in formulating an operational interpretation of the low-infiation mandate ), and (3)accountability of the central bank for achieving the mandate By now a large amount of research has been done on inflation targeting and re lated research topics. There has been work on institutions and political economics, for instance on governance, independence, delegation, accountability, decision-making in committees, and the role of transparency for incentives. There has been work on many aspects of the transmission mechanism, including aggregate supply/Phillips curves, ag gregate demand /IS curves, the credit channel and the financial accelerator, the impact of asset prices, the term structure of interest rates, the role of money, and the fiscal theory of the price level. There has been work on monetary-policy objectives, including the relation between inflation and economic growth, targeting inflation versus alterna- tives(the price level, nominal GDP, money growth, exchange rates, etc. ) flexible ver- sus strict inflation targeting(to what extent inflation targeting includes concerns about the real economy, the output gap, interest rates, and the exchange rate ), the relation772 L.E.O. Svensson / European Economic Review 46 (2002) 771 – 780 Except for research on the bene@cial consequences of central-bank independence and low in ation, and academic advice by Charles Goodhart on the incentive structure for the Governor of the Reserve Bank of New Zealand, in ation targeting was introduced in early 1990s without any preceding speci@c academic research on in ation targeting. The credit for the initial rise of in ation targeting goes mostly to insightful central-bank and @nance-department oJcials rather than academics. Once in ation targeting was introduced in the mid 1990s, though, an increasing number of academics started to do research on the topic, and by now there is large volume of accumulated research, and the number of papers and books on in ation targeting is growing fast. How should we de@ne in ation targeting? I believe it is useful to emphasize three characteristics: (1) There is a numerical in ation target, in the form of either a point target (with or without a tolerance interval) or a target range. This numerical in a￾tion target refers to a speci@c price index. Achieving the in ation target is the pri￾mary objective of monetary policy, although there is room for additional secondary objectives, as we shall see. There is no other nominal anchor, like an exchange-rate target or a money-growth target. (2) The decision-making process can be described as “in ation-forecast targeting”, in the sense that the central bank’s in ation forecast has a prominent role and the instrument is set such that the in ation forecast conditional in the instrument setting is consistent with the target. This does not exclude that output and output-gap forecasts also enter in an essential way, as we shall see. (3) There is a high degree (an exceptionally high degree, by historical standards) of transparency and accountability. The central bank is accountable for achieving the in ation target and provides transparent and explicit monetary-policy reports presenting its forecasts and explaining and motivating its policy. However, these days many countries call themselves in ation targeters without seem￾ing to take the in ation targeting very seriously. Indeed, an institutional commitment to in ation targeting appears essential for in ation targeting to have much meaning. Such an institutional commitment involves (1) a clear (preferably legislated) mandate for a monetary policy directed towards low in ation, (2) central-bank independence (“instrument independence”, meaning independence in setting the monetary-policy in￾strument, in some cases also independence in formulating an operational interpretation of the low-in ation mandate), and (3) accountability of the central bank for achieving the mandate. By now a large amount of research has been done on in ation targeting and re￾lated research topics. There has been work on institutions and political economics, for instance on governance, independence, delegation, accountability, decision-making in committees, and the role of transparency for incentives. There has been work on many aspects of the transmission mechanism, including aggregate supply=Phillips curves, ag￾gregate demand=IS curves, the credit channel and the @nancial accelerator, the impact of asset prices, the term structure of interest rates, the role of money, and the @scal theory of the price level. There has been work on monetary-policy objectives, including the relation between in ation and economic growth, targeting in ation versus alterna￾tives (the price level, nominal GDP, money growth, exchange rates, etc.), exible ver￾sus strict in ation targeting (to what extent in ation targeting includes concerns about the real economy, the output gap, interest rates, and the exchange rate), the relation