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Controlling inflation after Bretton Woods: an analysis based on policy objectives

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  • William T. Gavin

Abstract

This paper reviews the inflation experience in the post-Bretton Woods era in the context of alternative central bankobjectives. It summarizes research on inflation-targeting issues, especially those associated with stabilizing the price level. Generally, inflation-targeting schemes do not provide a nominal anchor unless the central bank is focusing strictly on theinflation target and ignoring unemployment and the business cycle. Research summarized in this article suggests that themost important step a central bank can take to improve policy is to decide on a long-term path for the price level. Being explicit about the desired path for the price level not only reduces inflation variability at all horizons, but also gives the policymaker more flexibility to pursue output stabilization goals.

Suggested Citation

  • William T. Gavin, 2000. "Controlling inflation after Bretton Woods: an analysis based on policy objectives," Working Papers 2000-007, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2000-007
    DOI: 10.20955/wp.2000.007
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    References listed on IDEAS

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