Inflation-targeting and Forex intervention: Are two targets better than one?

OTTAWA • Mark Carney is wasting little time setting the tone for his tenure at the helm of the Bank of England. Recent comments — both here and abroad — by the Bank of Canada governor have been spiced with calls for other policymakers to keep their options open to ensure “escape velocity” for their economies. In other words, Mr. Carney, who will be transplanted to London in July, sees more wiggle room for monetary easing to stop the global economy from tipping back into recession. While much has been achieved, more needs to be done

Martin Wolf thinks this crisis represents a “disaster” for monetary policy, and that central banks in future should do more than just target inflation. I’m not sure. I’ve got six questions here.

  Since the Financial Crisis erupted in 2007, the US Federal Reserve has engaged in dozens of interventions/ bailouts to try and prop up the financial system. Now, I realize that everyone knows the Fed is “printing money.” However, when you look at the list of bailouts/ money pumps it’s absolutely staggering how much money the Fed has thrown around.   Here’s a recap of some of the larger Fed moves during the Crisis:  

A post on deflation in Sweden (which its central bank does not want) got me to thinking about inflation targeting once again. Sweden's central bank, the Riksbank, has an inflation target  of  "2 per cent as measured by CPI." Bernanke has a similar target, as do many central banks.

A post on deflation in Sweden (which its central bank does not want) got me to thinking about inflation targeting once again. Sweden's central bank, the Riksbank, has an inflation target  of  "2 per cent as measured by CPI." Bernanke has a similar target, as do many central banks.

Via Hinde Capital, Central banks are the devil. They are like drug dealers except they administer regular doses of supposedly legally prescribed barbiturates to their addicts. The 'easy money' or 'credit' they create is an opiate and like all addictions there is a payback for the addicts, one exacted only in loss of health, misery and death.

In one of his last speeches as governor of the Bank of England before he steps down at the end of June, Sir Mervyn said that retaining a 2pc target was an “essential” part of monetary policy. It followed comments by Mr Carney, the current Bank of Canada governor who takes over at the Bank of England on July 1, suggesting that central bankers could abandon inflation targeting, reports The Telegraph.

NOMINAL GDP targeting is not a new idea. It has an intellectual pedigree that goes back well before the crisis, but even if we just focus on the recent debate over changing Fed policy to targeting growth in the level of nominal output, we're talking about nearly 3 years' worth of public discussion. Scott Sumner started his blog in early 2009, was linked by Tyler Cowen just a few weeks later, and had the economics blogsphere debating intensely by the end of that year. It has taken a while for non-economist elites to notice, but the debate has been bubbling for a while.