Inflation Targeting: What Can the ECB Learn From the Recent Experience of the Bank of England?

Abstract

Establishment of the European Central Bank presents a rare opportunity to de®ne the operations of a central bank without a prior track record. This paper asks what might be learnt from the recent experience of in¯ation targeting at the Bank of England before the ECB speci®es an, as yet unde®ned, operational target. We consider whether there should be single or multiple targets and which in¯ation measure should be used, if at all. If in¯ation is targeted then a forecast of its value becomes the intermediate variable. This raises an issue of transparency and the compensating supply of information necessary to ®ll the gap, but too much`openness' can also be problematic. The ECB must be accountable and the contracting approach may be useful although being seen to`say' and`do' the same thing is ultimately most important.

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