Monetary policy, relative prices and inflation control: flexibility born out of success

Claudio Borio, Piti Disyatat, Fan Dora Xia and Egon Zakrajšek ()

BIS Quarterly Review, 2021

Abstract: The achievement of low and stable inflation on the back of credible monetary policy frameworks has coincided with a sharp and major drop in the co-movement of prices across finely disaggregated sectors of the economy. In other words, sector-specific price developments have become much more prominent in driving fluctuations in aggregate price indices. In addition, changes in the stance of monetary policy in this environment affect a rather narrow set of prices, limiting the policy's ability to steer inflation within tight ranges as well as the desirability of doing so. All told, this highlights the importance of flexibility in the pursuit of inflation targets within a credible policy regime.

JEL-codes: E31 E52 E58 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (9)

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