Author:Raquel Almeida Ramos, Jan-Willem Lammes
Subject: Macroeconomic Policies
" /> Abstract: Two trends had been clear in recent years: “the anti-inflationary target moved the employment objective to a secondary position” and, with regards to the instruments, “monetary policy was established as the macroeconomic policy par excellence” (Frenkel, 2006). This focus was questioned in the aftermath of the 2008/9 crisis, when some policymakers found themselves challenged by increasing inflation at a period when a supportive monetary stance was demanded. The focus on inflation itself was built on the broadly assumed understanding that stable inflation resulted in a stable output gap (c.f. ‘divine coincidence’). This argument is the concern of a deep rethinking, illustrated by Blanchard (2011), who once introduced the benchmark ‘divine coincidence’ and today questions the coincidence between inflation stability and the output gap. The implicit consequence for central bankers would be that they have to watch both inflation and the output gap, if they care about macro stability. (…)

keywords: Rethinking Inflation: IMF Recommendations Fall Short
Date Publication: 04/16/2012 (All day)
Type/Issue: One Pager / 143
Language: English