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Multiple Objectives and Central Bank Tradeoffs Under Flexible Inflation Targeting

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  • Walsh, Carl E

Abstract

Many inflation targeting central banks are facing calls to expand their list of policy goals. I discuss how recent research provides new insights into the goals of policy and the tradeoffs presented by multiple goals. I focus particular attention on the role of unemployment and labor market frictions, but I also discuss the role of currency misalignment in affecting policy objectives in open economies. Current models often find that price stability is close to the optimal policy, even when, in theory, the central bank should care about multiple goals. I offer some ideas about why this might be the case.
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Suggested Citation

  • Walsh, Carl E, 2014. "Multiple Objectives and Central Bank Tradeoffs Under Flexible Inflation Targeting," Santa Cruz Department of Economics, Working Paper Series qt3pq021t5, Department of Economics, UC Santa Cruz.
    • Handle: RePEc:cdl:ucscec:qt3pq021t5
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    Cited by:

    1. Martin Seneca, 2020. "Risk Shocks and Monetary Policy in the New Normal," International Journal of Central Banking, International Journal of Central Banking, vol. 16(6), pages 185-232, December.
    2. Antoine Lepetit, 2020. "Asymmetric Unemployment Fluctuations and Monetary Policy Trade-Offs," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 36, pages 29-45, April.
    3. Krug, Sebastian, 2018. "The interaction between monetary and macroprudential policy: Should central banks 'lean against the wind' to foster macro-financial stability?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy, vol. 12, pages 1-69.
    4. Krug, Sebastian, 2015. "The interaction between monetary and macroprudential policy: Should central banks "lean against the wind" to foster macrofinancial stability?," Economics Working Papers 2015-08, Christian-Albrechts-University of Kiel, Department of Economics.
    5. Faisal Rachman, 2016. "Is Inflation Target Announced by Bank Indonesia the Most Accurate Inflation Forecast?," Economics and Finance in Indonesia, Faculty of Economics and Business, University of Indonesia, vol. 62, pages 98-120, August.
    6. Brand, Claus & Obstbaum, Meri & Coenen, Günter & Sondermann, David & Lydon, Reamonn & Ajevskis, Viktors & Hammermann, Felix & Angino, Siria & Hernborg, Nils & Basso, Henrique & Hertweck, Matthias & Bi, 2021. "Employment and the conduct of monetary policy in the euro area," Occasional Paper Series 275, European Central Bank.
    7. Carlos Caceres & Mr. Yan Carriere-Swallow & Bertrand Gruss, 2016. "Global Financial Conditions and Monetary Policy Autonomy," IMF Working Papers 2016/108, International Monetary Fund.
    8. Hauser, Daniela & Seneca, Martin, 2022. "Labor mobility in a monetary union," Journal of International Economics, Elsevier, vol. 137(C).
    9. Jan Fredrik Qvigstad, 2019. "How to draft ‘good’ minutes of monetary policy decisions," Economic Affairs, Wiley Blackwell, vol. 39(1), pages 44-64, February.

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