But being forward-looking is quite difficult amid the current uncertainties, even for a central bank. Indeed, all our economic models are estimated over a sample period in which imbalances were accumulated. These models may thus consider disequilibrium behaviour as “equilibrium”. The resulting forecast might inevitably be biased. Judgement is thus required, but also some ability to think “outside the box”.
See also Wolman (2005) for a discussion of the effectiveness of price-level targeting at the ELB. For a discussion of the relationship between price-level targeting and average-inflation targeting, see Nessén and Vestin (2005). 11 The strategy in Reifschneider and Williams (2000), for instance, involves a central bank following a Taylor rule modified to make up for shortfalls in policy accommodation during ELB episodes.