By setting a target, central banks have been able to keep inflation low and stable, Federal Reserve Bank of St. Louis President and CEO James Bullard said Thursday.
“By committing to an inflation target, inflation has generally been kept lower and less variable, and inflation expectations have also been less variable,” Bullard said in a speech in Philadelphia, according to text released by the Fed.
And, it doesn’t matter if the inflation targeting was implicit or explicit, he noted.
“Inflation targeting has worked well because it deals more directly with the coordination of macroeconomic expectations than other approaches,” he added. “By committing to an inflation target, inflation has generally been kept lower and less variable, and inflation expectations have also been less variable.”
But while inflation targeting has succeeded, taking it to the next level by committing to “a Taylor-type monetary policy rule … cannot really be answered without the assistance of a macroeconomic model,” he said.
“If recent monetary policy can be viewed as close to optimal, then attempts to further pin down expectations of future policy actions may be less desirable,” Bullard noted. “If recent monetary policy is viewed as less close to optimal, then further monetary policy commitment may confer important benefits to the economy.”