Articles and Commentary
Resources from the Federal Reserve Bank of St. Louis
"How Did We Get to Inflation Targeting and Where Do We Need to Go to Now? A Perspective from the U.S. Experience"
by Daniel L. Thornton, Federal Reserve Bank of St. Louis Review, January/February 2012. Working paper version.
Abstract: The Federal Reserve is not formally inflation targeting. Nevertheless, it is commonly believed to be an implicit inflation targeter. The evolution to inflation targeting occurred because central banks, most importantly the Federal Reserve, demonstrated that monetary policy could control inflation. As central banks' credibility for keeping inflation low increased, policy actions became increasingly focused on affecting the growth rate of employment or the unemployment rate. The author argues that this change in emphasis is unlikely to generate positive benefits; more importantly, it endangers the continued effectiveness, and perhaps even the viability, of inflation targeting.
"Core Inflation: A Review of Some Conceptual Issues"
by Mark A. Wynne, Federal Reserve Bank of St. Louis Review, May/June 2008.
Abstract: This paper reviews various approaches to the measurement of core inflation that have been proposed over the years using the stochastic approach to index numbers as a unifying framework. It begins with a review of how the concept of core inflation is used by the world's major central banks, including some of the inflation-targeting central banks. The author provides a comprehensive review of many of the measures of core inflation that have been developed over the years and highlights some of the conceptual and practical problems associated with them.
Abstract: This analysis addresses changing views of the role and effectiveness of monetary policy, inflation targeting as an "effective monetary policy," monetary policy and short-run (output) stabilization, and problems in implementing a short-run stabilization policy.
"Do Inflation Targeters Outperform Non-targeters?"
by Michael J. Dueker and Andreas M. Fischer, Federal Reserve Bank of St. Louis Review, September/October 2006.
Abstract: Ten years of empirical studies of inflation targeting have not uncovered clear evidence that monetary policy that incorporates formal targets imparts better inflation performance. The authors survey the literature and find that the "no difference" verdict concerning inflation targeting has been robust to a wide range of countries and methods of analysis, starting with a study by Dueker and Fischer (1996a). The authors present updated Markov-switching estimates from the original Dueker and Fischer (1996a) article and show that their early conclusions about inflation targeting among early adopters have not been overturned with an additional decade of data. These findings to date do not rule out the possibility, however, that formal inflation targets could prove pivotal if the global environment of disinflation were to reverse course.
by William Poole, Federal Reserve Bank of St. Louis Review, May/June 2006.
This article was originally presented as a speech to Junior Achievement of Arkansas, Inc., Little Rock, Ark., February 16, 2006.
Abstract: The Federal Reserve currently has a dual mandate: promote price stability and full employment. In a speech presented at the University of California at San Diego Economic Roundtable, Laurence Meyer explores two policy options that would change the current framework. Meyer discusses whether the United States should (i) move to an inflation-targeting regime (placing primary emphasis on price stability) or (ii) set an explicit numerical target for inflation within the context of the current dual mandate. For background, he describes an inflation-targeting regime, reviews various mandates around the world, and discusses common elements and differences among the regimes. He then explores each option. Because the first option may reduce the flexibility of monetary policy too stringently, it is determined to be undesirable. The second option would, in the author's opinion, give added precision to an already mandated objective because it would improve transparency and accountability of the Fed, anchor inflation expectations and increase the Fed's credibility, and institutionalize good monetary policy. The steps necessary to implement the preferred option are outlined.
"Inflation-Target Design: Changing Inflation Performance and Persistence in Industrial Countries"
by Pierre L. Siklos, Federal Reserve Bank of St. Louis Review, March/April 1999.
"The FOMC in 1995: A Step Closer to Inflation Targeting?"
by William T. Gavin, Federal Reserve Bank of St. Louis Review, September/October 1996.