New publication: “Some Lessons from Six Years of Practical Inflation Targeting,” Sveriges Riksbank Economic Review 2013:3, 29-80.
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” 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.