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

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Is inflation targeting dead? Central Banking After the CrisisFigure 2. Banks’ non-domestic assets% ofGDP300250UKUS20015010050Source: BIS1985 1990 1995 2000 2005 20100Figure 3. Mortgage write-off rates3%2%UKUS1%Source: Bank of England and Federal Reserve1993 1996 1999 2002 2005 2008 20110%This calculation clearly differs from one country to another. But the perceived difficultyof relying on monetary policy alone to achieve financial stability explains why manycountries, including the UK, have focused on developing ‘macroprudential’ tools, bettersuited to dealing with variations in systemic risk in the financial system.56
Is inflation targeting dead?The costs of discretionThe question ‘is inflation targeting dead?’ should entail a positive answer to the questionabout what would have done (or would do) better. Too often it does not – or, if there isa proposed alternative, the answer seems to change according to the particular criticismbeing made. Nominal-income targeting is more forgiving of ‘cost’ shocks; a policythat paid more attention to asset prices might have reduced the severity of the financialCrisis; a greater focus on unemployment would mean a faster recovery today.As it happens, I think these points are often exaggerated. Except when there areforecastable changes in supply, or other costs, the difference between stabilisingnominal-GDP growth and a flexible inflation target are not that large; at least in the UK,tighter monetary policy would have done little to ward off the financial Crisis or limitits damage; nor am I convinced that the protracted weakness in Europe’s economies,since the Crisis, is solely the result of insufficiently easy monetary policy (or, moreparticularly, insufficiently high inflation).But a separate point is that, offering multiple alternatives to inflation targeting comesclose to offering none at all – a policy of pure discretion. Theory tells us unfettereddiscretion is usually suboptimal, however beguiling it may be in real time. We alsotried it, at length, in the UK: between Bretton Woods and inflation targeting, monetarypolicy had no real anchor (or none that endured for any time). One can’t say it workedout that well.ReferencesBean, C (2003), “Asset Prices, Financial Imbalances and Monetary Policy: Are InflationTargets Enough?”, speech given in Basel, Switzerland.Bean, C, Paustian, M, Penalver A and T Tim (2010), “Monetary policy after the fall”,speech given at Jackson Hole, Wyoming.57
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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
Page 33 and 34: Who killed the inflation target?How
Page 35 and 36: Who killed the inflation target?red
Page 37 and 38: Is inflation targeting passé?Stefa
Page 39 and 40: Is inflation targeting passé?Raisi
Page 41: Is inflation targeting passé?In su
Page 44 and 45: Monetary targetry: Might Carneymake
Page 46 and 47: Is inflation targeting dead? Centra
Page 66 and 67: The evolution of modern centralbank
Page 74 and 75: Inflation targeting: Fix it, don’
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Page 90 and 91: Nominal-GDP targets, without losing
Page 104 and 105: 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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