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Working Paper 2009-038A

"How Did We Get to Inflation Targeting and Where Do We Go Now? A Perspective From the U.S. Experience"
by Daniel L. Thornton

This paper advances the hypothesis that the transition from there-is-little-central-banks-can-do-to-control-inflation to inflation targeting occurred because central banks, especially the Federal Reserve, demonstrated that central banks can control inflation rather than a consequence of marked improvement in the professions understanding of how monetary policy controls inflation. As consequence, monetary theorists and central bankers have returned to a Phillips curve framework for formulating and evaluating the monetary policy. I suggest that the return to the Phillips curve framework endangers the continued effectiveness, and perhaps even viability, of inflation targeting, recommend three steps that inflation-targeting central banks should take to preserve and strengthen inflation targeting.

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Category > Monetary Policy/Macroeconomics
Author > Daniel L. Thornton
Research Papers and Publications: JEL Code > E52
Research Papers and Publications: JEL Code > E58