David Beckworth says goodbye to inflation targeting

David Beckworth just sent me a new paper – Inflation Targeting: A Monetary Policy Regime Whose Time Has Come and Gone – he has written on why it is time to say goodbye to inflation targeting.

Here is the abstract:

Inflation targeting emerged in the early 1990s and soon became the dominant monetary-policy regime. It provided a much-needed nominal anchor that had been missing since the collapse of the Bretton Woods system. Its arrival coincided with a rise in macroeconomic stability for numerous countries, and this led many observ- ers to conclude that it is the best way to do monetary policy. Some studies show, however, that inflation targeting got lucky. It is a monetary regime that has a hard time dealing with large supply shocks, and its arrival occurred during a period when they were small. Since this time, supply shocks have become larger, and inflation targeting has struggled to cope with them. Moreover, the recent crisis suggests it has also has a tough time dealing with large demand shocks, and it may even contribute to financial instability. Inflation targeting, therefore, is not a robust monetary-policy regime, and it needs to be replaced.

David is an extremely clever guy and everything he writes on monetary matters is very interesting and insightful so it would be rather foolish not to read his latest paper. I will start right away – there is after all no World Cup football tonight!

 

 

About these ads
Leave a comment

1 Comment

  1. Thank you for the link, the paper is huge.
    What I has always looking for, to criticize the absurd policy of the Swiss National Bank that is based on inflation targeting but risking financial stability and big central bank losses.

    http://snbchf.com/

    Reply

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Follow

Get every new post delivered to your Inbox.

Join 3,889 other followers

%d bloggers like this: