Policy futures markets with multiple goals

Abstract

Previous work in monetary policy futures markets under a single policy goal have shown this approach to be effective at eliminating the circularity problem inherent with private-sector targeting strategies. We extend this monetary policy setting framework to a typical multiple goal policy objective: inflation and output stabilization. We also demonstrate how the prices in policy futures markets can help resolve debates over important policy questions.JEL Classification: E42, E44, E52, G13 Keywords: Policy futures market, forecast targeting, monetary targets, prediction markets, information markets. * I would like to thank Scott Sumner for immensely valuable feedback on earlier drafts. All errors or omissions are my own. Policy Futures Markets with Multiple GoalsAbstract Previous work in monetary policy futures markets under a single policy goal have shown this approach to be effective at eliminating the circularity problem inherent with private-sector targeting strategies. We extend this monetary policy setting framework to a typical multiple goal policy objective: inflation and output stabilization. We also demonstrate how the prices in policy futures markets can help resolve debates over important policy questions.JEL Classification: E42, E44, E52, G13