The Illusion of Inflation Targeting: Have Central Banks Figured Out What They Are Actually Doing Since the Global Financial Crisis? An Alternative to the Mainstream Perspective

Current discussions over the behavior of central banks show that more and more political leaders are demanding that the monetary authorities abandon a single-goal mandate of solely combating inflation. Many are considering a multi-goal commitment that would include not only concern with inflation, as had been the case before the global financial crisis. Central banks should also give due consideration to the problem of unemployment, income distribution and macro-prudential risks in their interest-rate setting. By looking at the experience of fourteen inflation-targeting countries since the global financial crisis, empirical evidence suggests that central banks have shifted significantly their behavior and have shown a high degree of pragmatism in dealing with the aftermath of the financial crisis, by loosening their focus on inflation. Using an alternative post-Keynesian analytical framework, the article then proceeds with an analysis of how central banks can effectively achieve a multi-goal commitment that would include full employment and a more equitable distribution of income in their pursuit of monetary policy.