What Difference Would an Inflation Target Make?

28 Pages Posted: 6 Dec 2012

See all articles by Robert L. Hetzel

Robert L. Hetzel

Federal Reserve Banks - Federal Reserve Bank of Richmond

Date Written: 2005

Abstract

Critics of an explicit inflation target argue that it would require additional fluctuations in real output and unemployment. I argue that theory and practice have shown this alleged dilemma to be a false one. However, an inflation target would demand more communication. The Fed would need to place an inflation target in the context of a policy rule that explains the strategy for achieving it. It would also need to communicate a model of the economy that clarifies the tradeoffs faced by monetary policymakers.

Suggested Citation

Hetzel, Robert L., What Difference Would an Inflation Target Make? (2005). FRB Richmond Economic Quarterly, vol. 91, no. 2, Spring 2005, pp. 45-72, Available at SSRN: https://ssrn.com/abstract=2185578

Robert L. Hetzel (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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