Friday, October 12, 2007

The Underpinning of Inflation Targeting (fg)

... is the title of Edward Nelson's latest working paper on Inflation Targeting. To him, the evolution towards inflation targeting in recent decades was not the result of changes in policy objectives; changing views about the tranmission mechanism rather played a pivotal role of that process including the sensitivity of aggregate demand on short-term interest rates, the role of asset prices and the degree of monetary accomodation.