Book contents
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- 1 Introduction
- 2 Welcome remarks: a Norwegian perspective
- 3 Reflections on inflation targeting
- 4 Inflation targeting at twenty: achievements and challenges
- 5 Inflation targeting twenty years on: where, when, why, with what effects and what lies ahead?
- 6 How did we get to inflation targeting and where do we need to go to now? A perspective from the US experience
- 7 Inflation control around the world: why are some countries more successful than others?
- 8 Targeting inflation in Asia and the Pacific: lessons from the recent past
- 9 Inflation targeting and asset prices
- 10 The optimal monetary policy instrument, inflation versus asset price targeting, and financial stability
- 11 Expectations, deflation traps and macroeconomic policy
- 12 Heterogeneous expectations, learning and European inflation dynamics
- 13 Inflation targeting and private sector forecasts
- 14 Inflation targeting, transparency and inflation forecasts: evidence from individual forecasters
- 15 Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters
- 16 Macro-modelling with many models
- 17 Have crisis monetary policy initiatives jeopardised central bank independence?
- 18 Inflation targeting: learning the lessons from the financial crisis
- 19 The financial crisis as an opportunity to strengthen inflation-targeting frameworks
- 20 ‘Leaning against the wind’ is fine, but will often not be enough
- 21 Inflation targeting, capital requirements and ‘leaning against the wind’: some comments
- Index
10 - The optimal monetary policy instrument, inflation versus asset price targeting, and financial stability
Published online by Cambridge University Press: 05 October 2010
- Frontmatter
- Contents
- List of figures
- List of tables
- List of contributors
- 1 Introduction
- 2 Welcome remarks: a Norwegian perspective
- 3 Reflections on inflation targeting
- 4 Inflation targeting at twenty: achievements and challenges
- 5 Inflation targeting twenty years on: where, when, why, with what effects and what lies ahead?
- 6 How did we get to inflation targeting and where do we need to go to now? A perspective from the US experience
- 7 Inflation control around the world: why are some countries more successful than others?
- 8 Targeting inflation in Asia and the Pacific: lessons from the recent past
- 9 Inflation targeting and asset prices
- 10 The optimal monetary policy instrument, inflation versus asset price targeting, and financial stability
- 11 Expectations, deflation traps and macroeconomic policy
- 12 Heterogeneous expectations, learning and European inflation dynamics
- 13 Inflation targeting and private sector forecasts
- 14 Inflation targeting, transparency and inflation forecasts: evidence from individual forecasters
- 15 Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters
- 16 Macro-modelling with many models
- 17 Have crisis monetary policy initiatives jeopardised central bank independence?
- 18 Inflation targeting: learning the lessons from the financial crisis
- 19 The financial crisis as an opportunity to strengthen inflation-targeting frameworks
- 20 ‘Leaning against the wind’ is fine, but will often not be enough
- 21 Inflation targeting, capital requirements and ‘leaning against the wind’: some comments
- Index
Summary
Introduction
Over the last couple of years the global financial system has undergone a period of unprecedented turmoil initiated by problems in the US mortgage market, which then spread to securitised products and a wide range of credit markets. Interbank markets have struggled to provide liquidity across the banking sector, thereby failing to act as a conduit for monetary policy, and systemically important financial institutions have collapsed, calling for public intervention on a scale not seen for decades. We believe that this crisis is a reflection of an overly expansionary monetary policy, carried out through an inflation-targeting regime, which induced excessive growth in credit and asset prices, as well as the inability of regulators to predict and deal with the distortions generated by financial innovations.
Inflation targeting has been successful in keeping inflation low and stable, but its proliferation is threatened by the fact that it accords overriding importance to price stability while central banks remain responsible for promoting financial stability. Since these two objectives reinforce each other in the long run, the conventional central banker's wisdom has been sceptical about the existence of a trade-off between price and financial stability. However, the current crisis has demonstrated that there are situations of short-term conflict; in the recent past, low interest rates and the success of central banks in achieving low inflation gave market participants a false sense of security, which contributed to the mispricing of risks and made the financial system more vulnerable.
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- Information
- Twenty Years of Inflation TargetingLessons Learned and Future Prospects, pp. 192 - 231Publisher: Cambridge University PressPrint publication year: 2010
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