Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- 1 Introduction
- 2 Welcome remarks: a Norwegian perspective
- 3 Reflections on inflation targeting
- 4 Inflation targeting at twenty: achievements and challenges
- 5 Inflation targeting twenty years on: where, when, why, with what effects and what lies ahead?
- 6 How did we get to inflation targeting and where do we need to go to now? A perspective from the US experience
- 7 Inflation control around the world: why are some countries more successful than others?
- 8 Targeting inflation in Asia and the Pacific: lessons from the recent past
- 9 Inflation targeting and asset prices
- 10 The optimal monetary policy instrument, inflation versus asset price targeting, and financial stability
- 11 Expectations, deflation traps and macroeconomic policy
- 12 Heterogeneous expectations, learning and European inflation dynamics
- 13 Inflation targeting and private sector forecasts
- 14 Inflation targeting, transparency and inflation forecasts: evidence from individual forecasters
- 15 Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters
- 16 Macro-modelling with many models
- 17 Have crisis monetary policy initiatives jeopardised central bank independence?
- 18 Inflation targeting: learning the lessons from the financial crisis
- 19 The financial crisis as an opportunity to strengthen inflation-targeting frameworks
- 20 ‘Leaning against the wind’ is fine, but will often not be enough
- 21 Inflation targeting, capital requirements and ‘leaning against the wind’: some comments
- Index
6 - How did we get to inflation targeting and where do we need to go to now? A perspective from the US experience
Published online by Cambridge University Press: 05 October 2010
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- 1 Introduction
- 2 Welcome remarks: a Norwegian perspective
- 3 Reflections on inflation targeting
- 4 Inflation targeting at twenty: achievements and challenges
- 5 Inflation targeting twenty years on: where, when, why, with what effects and what lies ahead?
- 6 How did we get to inflation targeting and where do we need to go to now? A perspective from the US experience
- 7 Inflation control around the world: why are some countries more successful than others?
- 8 Targeting inflation in Asia and the Pacific: lessons from the recent past
- 9 Inflation targeting and asset prices
- 10 The optimal monetary policy instrument, inflation versus asset price targeting, and financial stability
- 11 Expectations, deflation traps and macroeconomic policy
- 12 Heterogeneous expectations, learning and European inflation dynamics
- 13 Inflation targeting and private sector forecasts
- 14 Inflation targeting, transparency and inflation forecasts: evidence from individual forecasters
- 15 Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters
- 16 Macro-modelling with many models
- 17 Have crisis monetary policy initiatives jeopardised central bank independence?
- 18 Inflation targeting: learning the lessons from the financial crisis
- 19 The financial crisis as an opportunity to strengthen inflation-targeting frameworks
- 20 ‘Leaning against the wind’ is fine, but will often not be enough
- 21 Inflation targeting, capital requirements and ‘leaning against the wind’: some comments
- Index
Summary
Introduction
This chapter provides a perspective on the evolution to inflation targeting based on economic theory and the US experience. The Federal Reserve is not formally inflation targeting. Nevertheless, it is commonly believed to be an implicit inflation targeter. While the analysis presented here is based largely on the US experience, I believe that it applies broadly to all central banks.
The economics profession has made considerable progress towards understanding the role of central banks in controlling inflation in the forty-five years since I took my first economics course. Until at least the early 1970s the majority of the economics profession believed that central banks could do little to control inflation. Conventional wisdom had it that monetary policy was relatively ineffective for controlling inflation or for economic stabilisation. Fiscal policy, not monetary policy, was the principal way that governments could stabilise the economy and keep inflation low, by filling the gap between private demand and potential output. I review the evolution of economic thought from ‘there is little central banks can do to control inflation’ to ‘inflation targeting’.
My thesis is that policymakers' belief in the efficacy of monetary policy for inflation control changed dramatically in spite of the fact that there was no fundamental refutation of what I call the monetary policy ineffectiveness proposition (MPIP).
- Type
- Chapter
- Information
- Twenty Years of Inflation TargetingLessons Learned and Future Prospects, pp. 90 - 110Publisher: Cambridge University PressPrint publication year: 2010
- 6
- Cited by