EC233 Lecture Notes - Lecture 10: Dual Mandate, Deflation, Inflation Targeting
Document Summary
Five other goals are often mentioned by central bank officials when they discuss the objectives of monetary policy: 1. Economic growth: stability of financial markets, interest-rate stability, stability in foreign exchange markets. As we will see, similar considerations underlie monetary policy"s role in achievement of 1 and 2 (so we can regard 1 and 2 as the same objective). Goals 3 to 5 are financial rather than macroeconomic objectives, to whose achievement a stable monetary policy can make a contribution but for which other factors are also important. This makes sense as above-normal unemployment will tend to push inflation below 2 percent. Inflation-targeting central banks also stress this point. Disadvantages: too much rigidity, potential for increased output fluctuations, low economic growth during disinflation. The evolution of the federal reserve"s monetary policy strategy. The united states achieved excellent macroeconomic performance (including low and stable inflation) from the early 1980s until the financial crisis without using an explicit inflation target.
