Whither inflation targeting as a global monetary standard?

Claudio Borio

No 1230, BIS Working Papers from Bank for International Settlements

Abstract: From its tentative beginnings, inflation targeting has spread to become the de facto global monetary standard. Historically, only the Gold Standard has had a longer lifespan. Inflation targeting has done its job: helping to hardwire a low-inflation regime, even in the face of the post-Covid inflation surge. But the journey has been far from easy. Inflation targeting had to contend with the rise of financial instability, most spectacularly in the form of the Great Financial Crisis. In the wake of that crisis, it struggled to push inflation back up to point targets, and it saw a historical erosion in the room for policy manoeuvre. This paper assesses these challenges and considers possible adjustments to the framework. These include more systematic consideration of the longer-term damage that financial factors can cause to the economy and of the importance of safety margins in the conduct of policy. And all this should be grounded on a clear recognition of what monetary policy can and cannot deliver.

Keywords: monetary policy; business cycle; financial cycle; inflation targeting; deflation; natural interest rate (search for similar items in EconPapers)
JEL-codes: E31 E43 E51 E52 E58 (search for similar items in EconPapers)
Date: 2024-12
New Economics Papers: this item is included in nep-cba and nep-mon
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