Fed Has Never Pursued Price Stability
The problem with this reasoning is that the Fed has never pursued price stability in the sense he appears to use the word, which is to say zero inflation. In fact, if you look at the data, you can see that during the last 10 years (November 1998 to November 2008), the CPI rose in fact by 29.5% (the index rose from 164.0 to 212.425), almost exactly as much as Mankiw wants the Fed to target. And if you only look at the latest 5 years (November 2003 to November 2008), the increase was 15.1% (the index rose from 184.5 to 212.425), which would be 32.6% if repeated during the coming 5 years.
In other words, the Fed has already for years pursued the very policy which Mankiw claims would solve the problems. And given the fact that the Fed has created the kind of inflation rates Mankiw wants and given the fact that they have never pledged to pursue any other inflation rate, these inflation rates should already be expected.
To the extent that skepticism about the Fed's ability to create inflation has lowered these expectations, explicit targets shouldn't make any difference.