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

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Is inflation targeting dead? Central Banking After the CrisisAbout the authorLorenzo Bini Smaghi is a former member of the ECB’s Executive Board (2005-11).He is currently visiting Scholar at Harvard’s Weatherhead Center for InternationalAffairs and at the Istituto Affari Internazionali in Rome.36
Is inflation targeting passé?Stefan GerlachCentral Bank of Ireland and CEPRSome claim that inflation targeting is passé. This column argues that the Crisisspotlighted some insufficiencies in inflation targeting, but provide no important lessonon how monetary policy per se should be conducted. The answer is not to abandoninflation targeting for untested alternatives. Central banks should instead focus onensuring they have effective unconventional monetary-policy tools.As a consequence of the financial Crisis, it has been argued that inflation targetingand related monetary-policy strategies in which price stability is the primary policyobjective have become passé. Two prominent claims have been made:• First, by focusing excessively on stabilising inflation, central banks disregarded thefact that expansionary monetary policy led to credit-fuelled property-price bubblesin a number of countries;According to this view, the Crisis was partially a monetary-policy error.• Second, inflation targeting can prevent central banks from responding vigorously toweak economic growth in the aftermath of a bubble;In the interest of brevity, here I will focus on the second claim. Let me neverthelesssay that I believe that the first charge is largely incorrect. While low interest rates didlead to a ‘search for yield’ in financial markets, weaknesses in financial firms’ riskmanagement and in financial regulation and supervision were much more importantthan monetary policy in setting the stage for the Crisis. There is now much agreementthat macroprudential policy – loosely described as ‘non-interest rate policy’ – shouldbe used to constrain the financial system when policy-controlled interest rates are low.37
Page 1: Is Inflation Targeting Dead?Central
Page 5 and 6: ContentsForewordviiIntroduction 10L
Page 7 and 8: ForewordSince the onset of the Glob
Page 9 and 10: ForewordThe limits of monetary poli
Page 11 and 12: Introduction• Perpetrator: Inflat
Page 13 and 14: Introductionboth transparent commun
Page 15 and 16: Introduction• Financial crises of
Page 17 and 18: IntroductionThis posed a novel prob
Page 19 and 20: Introductionuntil unemployment fell
Page 21 and 22: Introductionbalance-sheet impairmen
Page 23 and 24: Introduction• Consideration of su
Page 25 and 26: Introductionenhance actual growth,
Page 27 and 28: Introductionrather than interpretin
Page 29 and 30: IntroductionConcluding remarksInfla
Page 31 and 32: Who killed the inflation target?Lor
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Page 44 and 45: Monetary targetry: Might Carneymake
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Page 66 and 67: The evolution of modern centralbank
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Is inflation targeting dead? Centra
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Nominal-GDP targets, without losing
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A broader mandate: Why inflationtar
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Will central banking change?Charles
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Central banking after the Crisis:Ch
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Challenges to inflation targeting a
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Is inflation targeting dead? Central Banking After the Crisis - Vox

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