Inflation targeting deserves serious attention

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The incoming chairman of the US Federal reserve is likely to use significant resources to study the impact of adopting an inflation target

Ben Bernanke may use modern technology to achieve things even Alan Greenspan could not have. Nominated by president Bush to succeed Greenspan, he has supported the adoption of inflation targets by the Fed. Some of the best work at the frontier of economics research has constructed fancy, hi-tech economic models, and demonstrated that inflation targets can significantly improve the effectiveness of monetary policy. To understand why inflation targeting may be necessary now, consider how the world has changed. Back in the 1970s, inflation twice rose higher than 10%, and every market particip...

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