Editor Pick – Does Inflation Targeting Make a Difference?
While the debate on whether the Fed should adopt a formal target is still open, a new NBER paper by Frederic S. Mishkin and Klaus Schmidt-Hebbel shows how inflation targeting countries have been successful in achieving lower inflation level, monetary policy independence and efficiency. However, the evidence does not indicate that inflation targeters have done better than credible central banks that do not target inflation, especially among industrial countries.
This conclusion supports the view of those that think that “it is a very constructive thing to see a Fed that is not slavishly tied to an inflation target”(Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York).
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