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Unformatted text preview: tion with public improved private sector planning by reducing uncertainty. 16 ► Disadvantages of Inflation Targeting: Delayed signaling: Inflation is not easy to control and outcomes are revealed only after a substantial lag. Therefore IT is not able to send immediate signals to the public about the stance of the policy. Too much rigidity: Since it imposes a rigid rule it may restrict policymakers’ ability to respond to unforeseen circumstances. However in practice it is far from rigid, it never requires the CB to focus on a key variable. CB utilizes all the available information. Also inflation targets have been modified depending on economic circumstances. Potential for increased output fluctuations: Sole focus on inflation may lead to too tight monetary policy, and may cause increased output fluctuations. However inflation targeters usually set target rates above zero and display concern about output fluctuations as well. Low economic growth: Disinflation usually associated with low growth, however once low inflation levels are achieved output and employment is expected to 1
recover. Once low inflation is achieved IT is not...
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