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

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Daniel L. Thornton

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Abstract

This paper advances the hypothesis that the transition from there-is-little-central-banks-can-do-to-control-inflation to inflation targeting occurred because central banks, especially the Federal Reserve, demonstrated that central banks can control inflation rather than a consequence of marked improvement in the professions understanding of how monetary policy controls inflation. As consequence, monetary theorists and central bankers have returned to a Phillips curve framework for formulating and evaluating the monetary policy. I suggest that the return to the Phillips curve framework endangers the continued effectiveness, and perhaps even viability, of inflation targeting, recommend three steps that inflation-targeting central banks should take to preserve and strengthen inflation targeting.

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Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2009-038.

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Date of creation: 2009
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Handle: RePEc:fip:fedlwp:2009-038

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Keywords: Monetary policy ; Phillips curve ; Inflation targeting;

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  21. Orphanides, Athanasios, 2003. "The quest for prosperity without inflation," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 633-663, April. [Downloadable!] (restricted)
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