Targets for Monetary Policy: Inflation, Exchange Rates, and Others
It is well known that most leading central banks have been, over much of the past 15-20 years, conducting monetary policy according to some variant of inflation targeting, implying that maintenance of a low and stable overall inflation rate is (in principle) the predominate objective. Prior to the financial crisis of 2008, this approach was much favored by academic monetary economists, as well as central bank officials and economists. The intensity of the crisis and our continuing slow pace of recovery have served, however, to diminish support for inflation targeting (IT).
It is well known that most leading central banks have been, over much of the past 15-20 years, conducting monetary policy according to some variant of inflation targeting, implying that maintenance of a low and stable overall inflation rate is (in principle) the predominate objective. Prior to the financial crisis of 2008, this approach was much favored by academic monetary economists, as well as central bank officials and economists. The intensity of the crisis and our continuing slow pace of recovery have served, however, to diminish support for inflation targeting (IT). Quite recently, as a possibly related matter, there has been an explosion of news items concerning the management of exchange rates, those of China and Japan being especially prominent, and with concern raised by the possibility of widespread trade wars of the “beggar thy neighbor” type, somewhat like those that contributed greatly to the disastrous severity of the Great Depression of the 1930s.
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