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The “inflation” in inflation targeting

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  • Richard Dennis

Abstract

Many central banks conduct monetary policy according to an inflation-targeting framework. Central to such a framework is the principle that monetary policy decisions are formulated in the context of an explicitly announced numerical target or range for some measure of inflation. Obviously, if an inflation-targeting framework is to be operational, then the important question of what measure of inflation to target cannot be avoided. There is unlikely to be a single answer to the question of which measure is best. And, indeed, inflation-targeting countries have varied significantly in the measures they have selected. This Economic Letter uses U.S. data to discuss some of the principles and issues involved in choosing an inflation measure to target.

Suggested Citation

  • Richard Dennis, 2010. "The “inflation” in inflation targeting," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jun7.
    • Handle: RePEc:fip:fedfel:y:2010:i:jun7:n:2010-17
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    Keywords

    Inflation (Finance); Monetary policy;

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