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How did we get to inflation targeting and where do we need to go to now? a perspective from the U.S. experience

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Author Info

  • Daniel L. Thornton

Abstract

The Federal Reserve is not formally inflation targeting. Nevertheless, it is commonly believed to be an implicit inflation targeter. The evolution to inflation targeting occurred because central banks, most importantly the Federal Reserve, demonstrated that monetary policy could control inflation. As central banks’ credibility for keeping inflation low increased, policy actions became increasingly focused on affecting the growth rate of employment or the unemployment rate. The author argues that this change in emphasis is unlikely to generate positive benefits; more importantly, it endangers the continued effectiveness, and perhaps even the viability, of inflation targeting.

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File URL: http://research.stlouisfed.org/publications/review/12/01/65-82Thornton.pdf
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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2012)
Issue (Month): Jan ()
Pages: 65-81

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Handle: RePEc:fip:fedlrv:y:2012:i:jan:p:65-81:n:v.94no.1

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Related research

Keywords: Inflation targeting ; Monetary policy - United States;

References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. Antonello D'Agostino & Domenico Giannone & Paolo Surico, 2005. "(Un)Predictability and Macroeconomic Stability," Macroeconomics 0510024, EconWPA.
  2. James H. Stock & Mark W. Watson, 2008. "Phillips curve inflation forecasts," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 53.
  3. Daniel L. Thornton, 2005. "Predictions of short-term rates and the expectations hypothesis of the term structure of interest rates," Working Papers 2004-010, Federal Reserve Bank of St. Louis.
  4. Marvin Goodfriend, 2007. "How the World Achieved Consensus on Monetary Policy," NBER Working Papers 13580, National Bureau of Economic Research, Inc.
  5. Jonas D. M. Fisher & Chin Te Liu & Ruilin Zhou, 2002. "When can we forecast inflation?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q I, pages 32-44.
  6. Katharine Neiss & Edward Nelson, 2002. "Inflation dynamics, marginal cost, and the output gap: evidence from three countries," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
  7. Robert H. Rasche & John A. Tatom, 1977. "The effects of the new energy regime on economic capacity, production, and prices," Review, Federal Reserve Bank of St. Louis, issue May, pages 2-12.
  8. Daniel L. Thornton, 2009. "The Fed, liquidity, and credit allocation," Review, Federal Reserve Bank of St. Louis, issue Jan, pages 13-22.
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Cited by:
  1. Daniel L. Thornton, 2012. "Monetary policy: why money matters, and interest rates don’t," Working Papers 2012-020, Federal Reserve Bank of St. Louis.
  2. Thornton, Daniel L., 2014. "Monetary policy: Why money matters (and interest rates don’t)," Journal of Macroeconomics, Elsevier, vol. 40(C), pages 202-213.
  3. Domenico Colucci & Vincenzo Valori, 2012. "Bounded rationality and parameters’ uncertainty in a simple monetary policy model," Working Papers - Mathematical Economics 2012-03, Universita' degli Studi di Firenze, Dipartimento di Scienze per l'Economia e l'Impresa.

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