Tuesday, June 27, 2006

The Futility of Inflation-Targeting

Read my latest LRC article where I describe why targeting of official consumer price inflation, which is official dogma of most mayor central banks and after Ben Bernanke became Fed Chairman unofficial Fed dogma too, even if desirable (an assumption which can be challenged on many legitimate grounds, but which for now was assumed for the sake of the argument)is a futile endeavor since central banks have almost no influence on the consumer price inflation data they know about, while knowing virtually nothing about the consumer price inflation data they can influence, something which of course makes it impossible for central banks to achieve that target except by pure luck(or statistical manipulation).

A fact which is illustrated by the fact that in recent year Denmark have better achieved the 2% consumer price inflation target than Sweden -whose Riksbank officially targets a 2% consumer price inflation rate- even though Denmark doesn't even attempt to achive it, as it instead pursues a fixed exchange rate policy versus the euro.


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