The Eroded Foundations of Inflation Targeting

Posen, Adam S.

doi:10.1111/manc.12299

Cited by 3 publications

(1 citation statement)

References 40 publications

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“…Moreover, the low interest rate environment has raised concerns that low profitability of financial institutions might threaten financial intermediation and stability down the road. These concerns have triggered efforts by central banks to reevaluate current monetary policy frameworks, with some observers questioning the very foundations of inflation targeting (e.g., Posen 2019).…”

Section: Introductionmentioning

confidence: 99%

Twenty Years of Unconventional Monetary Policies

Westelius¹

2020

IMF Working Papers

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The Bank of Japan has used unconventional monetary policies to fight deflation and stabilize the financial system since the late 1990s. While the Bank of Japan’s reflation efforts have evolved over time, inflation and inflation expectations have remained stubbornly low. This paper examines the evolution of monetary policy in Japan over the past twenty years, in order to draw relevant lessons and propose ways to strengthen the Bank of Japan’s policy framework. In doing so the analysis focuses on three aspects of monetary policy: objectives and goals; policy strategies; and the communication framework. Moreover, the paper discusses coordination between monetary, fiscal, and financial policies, and how the corresponding institutional design could be strengthened.

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Section: Introductionmentioning

confidence: 99%

Twenty Years of Unconventional Monetary Policies

Westelius¹

2020

IMF Working Papers

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Does communication influence executives’ opinion of central bank policy?☆

Hwang

Lustenberger²,

Rossi

2021

Journal of International Money and Finance

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Implications of household-level evidence for policy models: the case of macro-financial linkages

Muellbauer

2020

Oxford Review of Economic Policy

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Macroeconomic policy models should track the different channels of monetary transmission, providing a framework for Monetary Policy Committees. They should also be useful for assessing risks to financial stability, including for designing macroprudential stress tests and instrument settings in the new macroprudential toolkits. Current policy models, including the ‘semi-structural’ non-DSGE econometric models such as FRB-US, are seriously deficient in these respects, failing to capture the credit channel and the role of real estate in the financial accelerator that operated in the global financial crisis, and in key transmission channels in the recovery. Furthermore, developments in economic theory, greatly encouraged by new evidence, have rendered redundant the previously accepted micro-foundations for household behaviour in these policy models. A multi-purpose policy model needs to include a household-housing sub-system. This should contain a consumption function broadly consistent with the micro-evidence with equations for permanent income, for the balance sheet drivers, and for residential investment. To capture the credit channel, this block of the model needs to embed common credit conditions in the equations. Sub-system estimation is required to impose the cross-equation restrictions implied by these common factors.

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The Eroded Foundations of Inflation Targeting

Cited by 3 publications

References 40 publications

Twenty Years of Unconventional Monetary Policies

Twenty Years of Unconventional Monetary Policies

Does communication influence executives’ opinion of central bank policy?☆

Implications of household-level evidence for policy models: the case of macro-financial linkages

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