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Average Inflation Targeting in the Financial Crisis Recovery

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Abstract

The Federal Reserve adopted average inflation targeting as part of its long-run monetary strategy framework in 2020. This strategy allows inflation to rise and fall such that it averages 2% over time. Analysis shows that a version of average inflation targeting that is partly forward-looking—that is, one that responds in part to expected future inflation—could have improved economic outcomes in the recovery from the financial crisis of 2008, as well as substantially reduced the uncertainty around economic outcomes.

Suggested Citation

  • Vasco Curdia, 2022. "Average Inflation Targeting in the Financial Crisis Recovery," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, vol. 2022(01), pages 1-05, January.
    • Handle: RePEc:fip:fedfel:93612
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    References listed on IDEAS

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    1. Thomas M. Mertens & John C. Williams, 2019. "Monetary Policy Frameworks and the Effective Lower Bound on Interest Rates," AEA Papers and Proceedings, American Economic Association, vol. 109, pages 427-432, May.
    2. Andrea Ajello & Isabel Cairó & Vasco Curdia & Thomas A. Lubik & Albert Queraltó, 2020. "Monetary Policy Tradeoffs and the Federal Reserve's Dual Mandate," Finance and Economics Discussion Series 2020-066, Board of Governors of the Federal Reserve System (U.S.).
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