The Federal Reserve’s move to an explicit inflation target: incremental policy shifts in techno-political institutions

This paper analyzes the US Federal Reserve (Fed)’s landmark 2012 decision to adopt an explicit inflation target for the first time in its history. The paper focuses on explaining the dynamics of this policy shift. The relevant literatures authoritatively establish types of incremental change and the transformative nature of this kind of change. Using the case of the Fed’s policy shift, this paper advances a framework for explaining when the likelihood of such change increases, and how ‘policy entrepreneurs’’ strategies can affect this likelihood. Its theoretical discussions are broadly applicable to other techno-political institutions. The paper’s evidence comes from previously non-public internal Fed transcripts, and its discussions draw from diverse literatures – on the Fed and central banks, on multilateral economic institutions with similarly techno-political characteristics, historical institutionalism, as well as Macroeconomics.