20 - ‘Leaning against the wind’ is fine, but will often not be enough

Summary

Thank you for inviting me here to discuss inflation targeting twenty years on. It is now some years since I left active duty in a central bank. Participating in this panel has given me an opportunity, which I very much welcome, to summarise my thoughts on some of the monetary policy issues discussed today.

First, it is important to be clear what we mean when we talk about inflation targeting. Obviously, inflation targeting has to involve a target for inflation. In my world, that target also has to be explicit. I would therefore not think that a country could qualify as inflation targeting ex post – being perceived in retrospect as having tried to reach a target. This is sometimes claimed to have been the case for the Bundesbank, or, more recently, for the Federal Reserve. Acting in this way should be classified as behaving like an inflation targeter, not being one.

I also think that to be an ITer the target should be part of a wider framework, set up to make the bank clear and transparent. One should not only say in advance what one is aiming for, but it should also be possible to follow up in retrospect what has been delivered.

I do not believe that one can underestimate the importance of central banks trying to be open and clear during the recent decade and a half.