The economics of money, banking, and financial markets

xxiii

CHAPTER 16

The Conduct of Monetary Policy: Strategy and Tactics 

369

The Price Stability Goal and the Nominal Anchor .............................................................369

The Role of a Nominal Anchor ........................................................................................... 370

The Time-Inconsistency Problem........................................................................................ 370

Other Goals of Monetary Policy .............................................................................................371

High Employment and Output Stability ............................................................................. 371

Economic Growth .............................................................................................................. 372

Stability of Financial Markets ............................................................................................. 372

Interest-Rate Stability .......................................................................................................... 372

Stability in Foreign Exchange Markets ................................................................................ 373

Should Price Stability Be the Primary Goal of Monetary Policy?...................................373

Hierarchical Versus Dual Mandates ..................................................................................... 373

Price Stability as the Primary, Long-Run Goal of Monetary Policy ....................................... 374

Inflation Targeting .......................................................................................................................374

Inflation Targeting in New Zealand, Canada, and the United Kingdom .............................. 375

Advantages of Inflation Targeting ....................................................................................... 377

Disadvantages of Inflation Targeting ................................................................................... 379

The Evolution of the Federal Reserve’s Monetary Policy Strategy .................................380

The Fed’s “Just Do It” Monetary Policy Strategy .................................................................. 380

The Long Road to Inflation Targeting ................................................................................. 382