On Making Monetary Policy More Effective Domestically and Internationally
Allan H. Meltzer
Increased interest in price stability as the principal goal of monetary policy raises an issue about how well central banks can meet that goal.One approach is to forecast inflation a year or more ahead.Inability to separate permanent inflation from transitory,one-time changes in price levels suggests that forecast errors cannot be held within the 2% range frequently used.The paper again suggests an adaptive rule for money growth.If adopted for the principal currencies,the proposed rule would increase welfare for participants.Countries that have the best records of inflation control have often followed a rule of this kind.
Key words:Price stability;Inflation;Monetary policy;Central banks;Credibility;Adaptive rules
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