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

Cheap talk is no alternative toinflation targetingAdam S. PosenPeterson Institute for International EconomicsMacroeconomists’ decades-long support for inflation targeting has come under attack.This column argues that talk about alternatives to inflation targeting is a result offrustration, but that this frustration is misdirected. Central banks could have pursuedmore aggressive monetary policy, achieved better goals and still been consistent withinflation targets. There is no need to incur the risks, dangers, and confusion of switchingregimes – especially not to nominal-GDP targeting as this lacks robustness.The fad for proposing possible alternatives to inflation targeting is based on frustration.Where there have been IT and quantitative easing, many are saying that the effect ofadditional quantitative easing is diminishing. We have not seen the growth we wantto see. People are looking at whether there are other policy monetary instruments orregimes that might have a greater effect. In general, this is driven by the question aboutwhether central banks should be explicitly focusing on GDP (or unemployment) as wellas inflation by making statements.Forward guidance as a gimmickObviously there has been significant interest in ‘forward guidance’ and forms ofnominal-income targeting (Woodford (2012). I am a bit of an iconoclast on this.• I think forward guidance is, for the most part, a gimmick.I am very sceptical that such pre-commitments make much difference.Here are just three examples.59