May 15, 2008

Advice from Joe Stiglitz on Central Banking

"Most importantly, both developing and developed countries need to abandon inflation targeting. The struggle to meet rising food and energy prices is hard enough. The weaker economy and higher unemployment that inflation targeting brings won’t have much impact on inflation; it will only make the task of surviving in these conditions more difficult."

I always knew that central banking was pure crap. There's no way they can be credited for keeping inflation low in the last decade. His article can be found here.


Sebastian said...

As is often the case with radical claims, they tend to overdo it. Inflation targeting is not only mechanically increasing interst rates to any movement in prices. in particular, many models that imply inflation targeting as the optimum, do not use CPI inflation as the target but more something like PPI (or the inflation of domestically produced consumer prices). Hence, the increae in imported inflation would in any case not generaly lead to an increase in interest rates if a country follows a certain type of inflation targetting. Therefore, one needs to be careful about the conclusions that are drawn.

Dany said...

yep, and inflation trend more than just inflation due to ciclical factors. The problem is that at the begining was thought that the rise in prices and commodities was temporary, and now is getting kind of permanent. Even when radical, I think that the advise should be read as now is time to relax the target, or at least target to top of the inflation band, if this is what you have...... about the uselesness of CB, even a more radical statement, reminds me the idea od lucky rockstars induced by Rogoff itself

Dany said...

I meant, "food prices and commodities"