Inflation Targeting and Output Stability

by Esteban Jadresic

The adoption of monetary policy frameworks designed to maintain inflation broadly in line with an inflation target has become increasingly popular.2 The proposal to use inflation targeting as the fundamental criterion for day-to-day monetary policy, however, remains controversial. The primary criticism of explicitly or implicitly adopting a monetary policy rule based on inflation targeting is that doing so would give no weight to other legitimate monetary policy goals, and that in consequence, it can lead to undesirable outcomes. This concern has been mainly directed at the possibility that inflation targeting generates excessive output instability.3

40 pages, Kindle Edition

First published April 1, 1999