DP5915 Strong Goal Independence and Inflation Targets

Author(s): Ernst Baltensperger, Andreas M Fischer, Thomas J. Jordan
Publication Date: October 2006
Keyword(s): inflation targeting, medium and strong goal independence, weak
JEL(s): E50, E52, E58
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=5915

Inflation targeting has become the monetary policy framework of the nineties. At the other extreme, several central banks have recently adopted key elements of the inflation targeter's toolkit, but at the same time they have made formal declarations that they are not inflation targeters. Such a position may appear surprising. It indirectly suggests that a reneging strategy is beneficial for some. The paper considers reasons why it may be advantageous for some central banks to distinguish themselves from the inflation targeting strategy. Most importantly, we argue that explicit inflation targets can potentially undermine the goal independence of a central bank.