Tuesday, October 10, 2006

The Case for Inflation Targeting in the US and Japan

Economist John Makin writes about inflation targeting in a recent study "A Case for Inflation Targets in the United States and Japan" for the American Enterprise Institute. Most other advanced, developed economies have an inflation target to guide monetary policy: U.K., Canada, the European Union, New Zealand, and Australia. Makin conludes:

Inflation targeting is a useful tactic within a central bank strategy of maintaining low and stable inflation to enhance growth. It also helps to anchor inflation expectations as a means to enhance the effectiveness of central bank policy actions by minimizing their cost in terms of either lost output or employment. Both the Federal Reserve and the Bank of Japan could add to their already substantial contributions to global growth and stability by moving toward adoption of inflation targeting.


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