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.
Our Research Focus: Inflation and Monetary Policy
Amanda L. Kramer
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