There are many reasons to think that inflation targeting has had its day. The framework has already evolved to some extent, with central banks adopting “flexible” inflation-targeting and macroprudential tools. But arguably this flexibility does not go far enough; there is a strong case for a wider remit giving central banks the ability to use interest rates to ensure financial, as well as price, stability. While a radical overhaul of frameworks looks unlikely soon, we expect central banks to move gradually in this direction.
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