Is inflation targeting dead? Central Banking After the Crisis - Vox

Is inflation targeting dead? Central Banking After the CrisisAdditionally, prudential tools with a more precise focus are being developed with theaim of increasing the financial system’s resilience and dampening the transmission offinancial shocks to the real economy. We believe that these new instruments will play animportant role in the future. As a consequence, central banks’ operational frameworkswill become both more flexible and more complex than before the Crisis.Conclusions: Inflation targeting as a foundationThe lessons from the financial Crisis cannot and should not lead us away from pricestability as the primary objective of monetary policy. Inflation targeting is the foundationupon which we must now build a broader framework capable of delivering maximumsustainable growth, high employment and a stable financial system. Interest rates arenot enough. To meet the challenges posed by the realisation that low, stable inflationis necessary but not sufficient for financial stability, central banks must now employ awider array of monetary policy and prudential instruments. Since 2007, these tools haveproved essential in crisis management. They will now contribute to defining the newpost-Crisis landscape.The views expressed here are those of the authors and do not necessarily representthose of the institutions with which they are affiliated.About the authorsRyan Banerjee is a Senior Economist in the Monetary Analysis Directorate of theBank of England, where he works in the Macro Financial Analysis Division. He has alsoworked as an Economist for Professor Stephen Nickell in the External Monetary PolicyCommittee Unit and in the Financial Stability Directorate of the Bank of England. Heholds a PhD in economics from the University of Maryland (College Park). His policyand research interests include asset pricing, macro-prudential policy and developmenteconomics.118