Reflections on Monetary Policy: Flexibility, Transparency and Inflation
Last Updated: 08/16/06
On This PageSeptember 2006, No. 230
Monetary policy has come a long way in the past quarter century. Price stability has always been part of the Federal Reserve’s policy mandate. Should the Fed now adopt explicit numerical guidelines or targets for inflation?
We have gained important insights about the tactics of monetary policy as we have moved from an environment of moderate inflation to one of price stability. In particular, we have learned a good deal about the benefits of maintaining appropriate flexibility when implementing policy. We also have learned about the importance of communications and transparency in that implementation—notably their role in reducing the uncertainty that households and business owners face when making economic decisions, such as how much to spend, save and invest, or what prices to charge for their products.
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