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

Is inflation targeting dead? Central Banking After the CrisisConclusionTalk about alternatives to inflation targeting is, to me, a result of frustration – the lackof recovery despite massive monetary-policy shifts. But to my mind, the frustrationis misdirected. Sifting a central bank’s target from inflation to nominal GDP in noway changes the effectiveness of policy instruments. Either quantitative easing worksthrough the channel of promoting confidence, promoting asset prices, promotingaggregate demand and reallocation of the riskier assets, like all monetary policy, or itdoes not. If it does not do that, then it does not do that for nominal GDP any more thanit does for inflation.The fact is we could have pursued more aggressive monetary policy, achieved bettergoals and been totally consistent with the current inflation target. There is no need toincur all the risks, dangers, and confusion of switching regimes – especially not to aregime like nominal-GDP targeting, which lacks inflation targeting’s robustness.Forward guidance is no substitute for sufficient policy action.ReferencesCarney, Mark, (2012), Speech presented to: CFA Society Toronto, in Toronto, Ontario,December 11.Hellebrandt, Tomas, 2013. “Why the United Kingdom Should Adopt a Nominal GDPTarget”, PIIE Real Time Economic Issues Watch, March 21,Joyce, Michael, David Miles, Andrew Scott, Dimitri Vayanos, 2012. “QuantitativeEasing and Unconventional Monetary Policy – an Introduction,” The Economic Journal122 (564): F271–F288, NovemberPosen, Adam, 2012. “Discussion of Methods of Policy Accommodation at theInterest-Rate Lower Bound” presented at FRBKC Economic Policy Symposium on theChanging Policy Landscape, Jackson Hole, WY, August 31.64