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Title: Some Lessons from Six Years of Practical Inflation Targeting

Author(s): Lars E.O. Svensson

Publication Date: November 2013

Keyword(s): financial stabiilty, household debt, inflation targeting and Monetary policy

Programme Area(s): International Macroeconomics

Abstract: My lessons from six years of practical policy-making include (1) being clear about and not deviating from the mandate of flexible inflation targeting (price stability and the highest sustainable employment), including keeping average inflation over a longer period on target; (2) not adding household debt as a new (intermediate) target variable, in addition to inflation and unemployment ? not ?leaning against the wind,? which is counterproductive, but leaving any problems with household debt to financial policy; (3) using a two-step algorithm to implement ?forecast targeting?; (4) using four-panel graphs to evaluate monetary policy ex ante (in real time) and ex post (after the fact); (5) taking a credible inflation target and a resulting downward-sloping Phillips curve into account by keeping average inflation over a longer period on target; and (6) not confusing monetary and financial policy but using monetary policy to achieve the monetary-policy objectives and financial policy to maintain financial stability, with each policy taking into account the conduct of the other.

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Bibliographic Reference

Svensson, L. 2013. 'Some Lessons from Six Years of Practical Inflation Targeting'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=9756