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How flexible can inflation targeting be and still work?

  • Kuttner, Kenneth

    ()

    (Monetary Policy Committee Unit, Bank of England)

  • Posen, Adam

    ()

    (Monetary Policy Committee Unit, Bank of England)

This paper takes up the issue of the flexibility of inflation targeting regimes, with the specific goal of determining whether the monetary policy of the Bank of England, which has a formal inflation target, has been any less flexible than that of the Federal Reserve, which does not have such a target. The empirical analysis uses the speed of inflation forecast convergence, estimated from professional forecasters' predictions at successive forecast horizons, to gauge the perceived flexibility of the central bank's response to macroeconomic shocks. Based on this criterion, these is no evidence to suggest that the Bank of England's inflation target has compelled it to be more aggressive in pursuit of low inflation than the Federal Reserve.

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Paper provided by Monetary Policy Committee Unit, Bank of England in its series Discussion Papers with number 34.

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Length: 35 pages
Date of creation: 01 Oct 2011
Date of revision:
Handle: RePEc:mpc:wpaper:0034
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