The Future of Inflation Targeting


  • Prepared for the 2010 Australian Conference of Economists, Sydney, 27–29 September 2010. I would like to thank Mark Carney, Yongsung Chang, Rakesh Mohan, Jouko Vilmunen, Tony Yates and participants at the 2009 Jackson Hole Symposium and the 2010 Bank of Korea International Conference for comments on earlier versions of some of this material and Sergio Lago Alves and David Florian-Hoyle for excellent research assistance. A longer version of this article is available at

Carl E. Walsh, Department of Economics, University of California, 1156 High St., Santa Cruz, CA 95064, USA. Email:


By the end of the Great Moderation, over two dozen central banks were formal inflation targeters, and others, such as the Federal Reserve, the European Central Bank and the Swiss National Bank, behaved essentially as inflation targeters even though they were resistant to identifying themselves as such. However, the past 3 years have seen central banks faced with new challenges, and these have raised questions about the future of inflation targeting as a framework for the conduct of monetary policy. I consider three suggested modifications to this policy framework: incorporating additional goals among a central bank's objectives; raising the average target for inflation; and switching to price level targeting.