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The Use and Meaning of Words in Central Banking: Inflation Targeting, Credibility, and Transparency

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  • Benjamin M. Friedman
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    Abstract

    Inflation targeting offers the promise of introducing to monetary policy a logic and consistency that some central banks' deliberations sorely missed in the past. At least in today's inherited monetary policymaking context, however, inflation targeting also serves two further objectives that are of more questionable import, and while seemingly contradictory, the two are ultimately related: By forcing participants in the monetary policy debate to conduct the discussion in a vocabulary pertaining solely to inflation, inflation targeting fosters over time the atrophication of concerns for real outcomes. In the meanwhile, inflation targeting hides from public view whatever concerns for real outcomes policymakers do maintain. Both objectives are understandable. Whether either is desirable on economic grounds is an open question. Neither is very consistent with the role of monetary policy in a democracy.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8972.

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    Date of creation: May 2002
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    Publication status: published as Mizen, Paul (ed.) Essays in honour of Charles Goodhart. Volume 1. Central banking, monetary theory and practice. Cheltenham, U.K. and Northampton, MA: Elgar, 2003.
    Handle: RePEc:nbr:nberwo:8972

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    1. King, Robert G. & Watson, Mark W., 1994. "The post-war U.S. phillips curve: a revisionist econometric history," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 41(1), pages 157-219, December.
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    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. Alfred Broaddus, Jr., 2001. "Transparency in the practice of monetary policy," Economic Quarterly, Federal Reserve Bank of Richmond, issue Sum, pages 1-9.
    5. Roberts, John M, 1995. "New Keynesian Economics and the Phillips Curve," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 975-84, November.
    6. Rotemberg, Julio J, 1982. "Sticky Prices in the United States," Journal of Political Economy, University of Chicago Press, vol. 90(6), pages 1187-1211, December.
    7. Marvin Goodfriend & Robert G. King, 2001. "The case for price stability," Working Paper 01-02, Federal Reserve Bank of Richmond.
    8. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," Working papers 427, Massachusetts Institute of Technology (MIT), Department of Economics.
    9. Guy Debelle & Stanley Fischer, 1994. "How independent should a central bank be?," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, vol. 38, pages 195-225.
    10. King, Mervyn, 1997. "Changes in UK monetary policy: Rules and discretion in practice," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 81-97, June.
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    Cited by:
    1. Daniel L. Thornton, 2003. "Monetary policy transparency: transparent about what?," Working Papers 2002-028, Federal Reserve Bank of St. Louis.
    2. Carl E. Walsh, 2009. "Inflation Targeting: What Have We Learned?," International Finance, Wiley Blackwell, vol. 12(2), pages 195-233, 08.
    3. repec:cto:journl:v:24:y:2004:i:1-2:p:27-40 is not listed on IDEAS
    4. Gilberto Libânio, 2008. "A Note on Inflation Targeting and Economic Growth in Brazil," Anais do XXXVI Encontro Nacional de Economia [Proceedings of the 36th Brazilian Economics Meeting] 200807211614210, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Claudio Borio & William English & Andrew Filardo, 2003. "A tale of two perspectives: old or new challenges for monetary policy?," BIS Papers chapters, in: Bank for International Settlements (ed.), Monetary policy in a changing environment, volume 19, pages 1-59 Bank for International Settlements.
    6. Gilberto Libanio, 2005. ""Good governance" in monetary policy and the negative real effects of inflation targeting in developing economies," Textos para Discussão Cedeplar-UFMG td277, Cedeplar, Universidade Federal de Minas Gerais.
    7. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.
    8. Lamberte, Mario B., 2002. "Central Banking in the Philippines: Then, Now and the Future," Discussion Papers DP 2002-10, Philippine Institute for Development Studies.
    9. Seth B. Carpenter, 2004. "Transparency and monetary policy: what does the academic literature tell policymakers?," Finance and Economics Discussion Series 2004-35, Board of Governors of the Federal Reserve System (U.S.).
    10. Leland B. Yeager, 2004. "The Euro Facing Other Moneys," Cato Journal, Cato Journal, Cato Institute, vol. 24(1-2), pages 27-40, Spring/Su.

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