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Article: Avoiding significant monetary policy mistakes.(policy of Federal Open Market Committee)
- Article from:
- Federal Reserve Bank of Minneapolis Quarterly Review
- Article date:
- December 1, 2004
- Author:
CopyrightCOPYRIGHT 2004 Federal Reserve Bank of Minneapolis. This material is published under license from the publisher through the Gale Group, Farmington Hills, Michigan. All inquiries regarding rights should be directed to the Gale Group. (Hide copyright information)
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With low inflation now a reality, the Federal Open Market Committee (FOMC) has achieved one of its primary objectives. Nevertheless, some have asked if this result is a product more of good fortune than of good policy. (See, for instance, Ihrig and Marquez 2003.) In this article, we consider a related issue of whether the FOMC policy framework is sound or, alternatively, it was rescued by good luck. In particular, we ask, Do the current policy procedures of the FOMC lead to too much risk of a bad inflation outcome? We argue that they do, and we then propose a type of inflation targeting to contain the risk.
For some time, the United States has experienced a fairly ...