An Elegant But Dangerous Idea
If it were only that easy. The risk is that central banks may delude themselves into thinking that the successes of the last 25 years on the inflation front are traceable to a rules-based monetary policy. The European Central Bank, for instance, is the world’s leading inflation targeter. America’s Federal Reserve has no such explicit mandate. Yet the Fed now wants to turn itself into the ECB. Newly appointed chairman Ben Bernanke was one of academia’s leading inflation targeters....