you may want to refer to pp 10-14 of this paper:

https://www.researchgate.net/publication/305084177_Challenges_Confronting_Central_Bankers_Today

Working Paper Challenges Confronting Central Bankers Today

Thanks for that recommendation, Adam.  I'll be sure to check it out.  Thanks!

Thanks for that comment, Dibakar.  You make a good point.  But I wanted to ask you if you think Inflation can be controlled or not?  If so, how?

Of course!

I'm not specialist in this domain, but I think that the Central Bank can have an inflation

Regards with my best wishes .

Mirjana

It seems more realistic to target an inflation-rate *range*. See DOI: https://doi.org/10.1017/S1365100508070466 .

Jacek 

Inflation is one of the things central banks should try to manage, at least (as per Prof Krawczyk) within a range.  The more profound question is whether it should be, or even can be, the sole consideration.  The EU central bank is supposed to have inflation control as its sole policy goal, but in practice it has had no choice but to also manage financial stability and even pay attention to employment.  I must add that Prof Pal, while correct that inflation is "man made" is wrong as to inflation being inevitable (ask the Japanese about deflation) and should not ascribe inflation to dishonesty which is always there whether there is inflation or not.  Also, rationing merely hides inflation, it does not cure it.

Hi Paul, I did a simple simulation study a few years ago, which is online here on Researchgate "Monetary Policy Rule Welfare Comparisons". In it I looked at and compared inflation targeting, Taylor rule, GDP only targeting, nominal GDP rule, and no response under different settings: AS shocks, AD shocks, GDP growth potential correct, too high, and too low. I also considered the zero lower bound. I measured welfare by aggregate RMSEs until equilibrium was achieved again.

I'ts a simple simulation but interesting nevertheless. Inflation targeting had the worst welfare result of any of the monetary rules.

Maybe it would help with your question?

Good luck!

    Pete

Thanks for that information, Pete.  I will dfinitely read your study.  It sounds very interesting!  Thanks again, Paul

There are strong reasons for a modern central bank to have an explicit target for the rate of inflation. However, there are good reasons to discuss a) the choice of a tolerance band around the target rate and b) the ranking between price stability (that is inflation targeting) and financial stability.  

http://www.centralbanknews.info/p/inflation-targets.html

A very interesting question.

Sweden changed in September 2017 to a variation band of 1-3 per cent (see https://www.riksbank.se/en-gb/monetary-policy/the-inflation-target/). Andersson and Jonung wrote about Sweden as an example just before (May 2017) the implementation of an explicit tolerance band see https://voxeu.org/article/inflation-targets-and-benefits-explicit-tolerance-ban

Why we dont we have zero inflation rate. I think that is possible but is that ideal. I think no, during boom it is easy to control inflation as most want to desire it to be zero. but during recession the problem is if we let inflation rate at zero we will hit the zero lower bound which mean that monetary tools will be ineffecttive . This problem leave central bank less room to put the ecnomy back to its full employment. I think for most part inflation targeting regime work on its purpose.

you may want to read my post on this topic.

https://ariszoleta.wordpress.com/2018/03/13/on-inflation-targeting-part-2/

Pegging inflation is permissible while Pegging Interest Rate may have severe consequences.

In many countries, one of the main functions of monetary policy is to maintain a low, one-digit level of inflation. Given the financial system, it is the central bank that has the strongest instruments to influence inflation. Central bank instruments should work and should be used prudently. The central bank should influence the level of inflation to control too large and too rapid changes in the level of inflation, which without this control could lead to hyperinflation and the economic crisis.

Best wishes

Dariusz Prokopowicz

My view is that central banks should aim for zero inflation. Any inflation distorts the communication between buyers and sellers, and the true real prices against all other goods and services. If this makes central banking jobs harder, that's their problem, not ours. With zero inflation, the real interest rate is the nominal rate. No guessing anymore. Contracts can be written with long maturities because of the certainty of the borrowing rate.

It's all good.

As a strategy, inflation targeting views the primary goal of the central bank as maintaining price stability. Raising interest rates is said to slow inflation and therefore slow economic growth. Lowering interest rates is believed to boost inflation and speed up economic growth.

There are major problems with aiming for a zero inflation rate. One is the measurement problem. With the usual price indices there are built in biases, so a measured inflation rate of zero does not mean that a "true" inflation rate is zero.

Another is that there are downward "sticky" nominal wages. In the case of a drop in demand if wages were fully flexible wages in some markets would decline. If they are sticky downward they do not decline. This leads to adjuctment that is all quantitative (decline in employment) with no wage change component. This also implies mostly quantitative adjustment in related product markets. If there is a small but positive inflation rate real wages in those markets can decline with no drop in nominal wages. This can mean a more efficient adjustment with less loss of employment and output.

I also note that central banks cannot expect to hit a single value target, at best they can hope to stay in a modest range, if they tried to hit zero they would spend (in a simple analyis) spend half their time in the negative range and the costs of deflation (even at low levels) are likely to be greater that the costs of positive inflation (with the same absolute value).

This discussion does not show that central banks should or should not have an inflation target, just that if they do it should not be zero. With respect to the basic question: Having a target and convincing the public that they will generally hit it (stay in a given range or below a given value) may help prevent the kind of expectations that cause destabilizing inflation dynamics. Or this may not work.