The writer is a visiting professor at Columbia University
The most egregious mistake made by a leading central bank in the pursuit of price stability has been the US Federal Reserve’s adoption of “average inflation targeting” in August 2020.
The 2 per cent annual inflation target for the personal consumption expenditure price index, introduced in 2012, applied to the inflation rate in any given period and the anticipated inflation rates for all future periods. AIT — even the flexible variety favoured by most members of the Federal Open Market Committee — calls for a deliberate overshooting following episodes of below-target inflation, so as to ensure that average inflation rates are closer to the target.
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