Allan Meltzer and the Search for a Nominal Anchor

Abstract

The author examines Allan Meltzer's career in terms of the search of a nominal anchor for the U.S. Inflation targeting has provided a nominal anchor, in line with Meltzer's view of inflation as a monetary phenomenon. Determining how close U.S. monetary policy has been to optimal in the past 20 years can give an idea of further gains that could be reaped by going beyond inflation targeting and committing to a Taylor-type rule, as favored by Meltzer. The author provides two examples: The flattening of the Phillips curve can be interpreted as a hallmark of optimal policy; the falling short of the 2 percent price level path established between 1995 and 2012 suggests room for improvement. Whether further gains from coordinating inflation expectations can be achieved is an important area of future research that surely will be influenced by Meltzer's work.