INTRODUCTION

This study has documented and traced the evolution of central bank policies and institutions since World War II. Evolution describes well the process by which monetary policy has changed over time and the forces that reshaped the institutional relationship between central banks and government on the one hand, and the public on the other. In essence the current state of affairs recognizes the role of inflation as the fulcrum of monetary policy more explicitly than has heretofore been possible or even desirable. The reason has to do with a search for a coherent policy framework in which monetary policy could operate. Through experimentation policy makers have concluded that, to date, the most coherent policy framework is to focus on some inflation objective.

Indeed, as this is written, it is becoming increasingly commonplace for central banks to adopt some kind of inflation objective. Whether as a guideline, or via more formal mechanisms, inflation targeting certainly strikes some as taking on a kind of flavor-of-the-month role among the existing menu of monetary policy frameworks. While it is difficult to find instances of central banks that did not have some kind of inflation control objective in mind throughout their history, the performance of inflation since the end of World War II lends credence to the view that good intentions alone in the realm of inflation are not enough. Either the hands of central bankers need somehow to be tied or the institutional relationship between the state and the central bank was flawed because, more often than not, central banks have not been able to deliver low and stable inflation rates for long stretches of time.