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Unformatted text preview: ederal Reserve Bank of US.
9 ► ► ► ► In theory these two mandates might imply the same thing as in the longrun there is no inconsistency between achieving price stability and the natural rate of unemployment. In the hierarchical mandate attempts to keep inflation at the same level no matter what, would likely to lead excessive output fluctuations. The goal of price stability should be only a long run goal and reducing output fluctuations should be also a concern of monetary policy.
Dual mandates on the other hand could create time
inconsistency problem. A dual mandate might lead the CB to pursue shortrun expansionary policies that increase output and employment without worrying about the long
run consequences for inflation.
Conclusion: Both mandates could work as long as they put the price stability as the longrun goal, not the shortrun goal.
10 Monetary Policy Strategies to Achieve Price Stability
► Monetary Targeting
► Inflation Targeting ► Implicit Nominal...
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