Svensson: Inflation targeting after the financial crisis
Summary "Inflation targeting after the financial crisis"
As the world economy begins to recover from the financial crisis and the resulting deep recession of the global economy, there is a lively debate about what caused the crisis and how the risks of future crises can be reduced. Some blame loose monetary policy for laying the foundation for the crisis and there is a lively debate about the future of monetary policy and its relation to financial stability.
In his speech Svensson will discuss the lessons for inflation targeting after the crisis. His view is that the crisis was not caused by monetary policy but mainly by regulatory and supervisory failures in combination with some special circumstances. Ultimately, his main conclusion for monetary policy from the crisis so far is that flexible inflation targeting, applied in the right way and using all the information about financial factors that is relevant for the forecast of inflation and resource utilization at any horizon, remains the best-practice monetary policy before, during, and after the financial crisis.
But a better theoretical, empirical and operational understanding of the role of financial factors in the transmission mechanism is urgently required and needs much work, work that is already underway in academia and in central banks.”
Read the whole speech in the PDF file below.
