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Targeting-Inflation/Interest Rates

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Targeting

When looking at targets, you will find that this is very important for economies to evaluate. If the Fed was to conduct targets, it will make their job a little bit more transparent. How effective would their policies to help stabilize our economy?

Inflation or Interest Rates

When looking at the Fed, you will find that they are trying to measure both inflation and interest rate changes. What is more important for them to monitor and target, inflation or interest rates?

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Solution Summary

When looking at targets, you will find that this is very important for economies to evaluate. If the Fed was to conduct targets, it will make their job a little bit more transparent. How effective would their policies to help stabilize our economy? And when looking at the Fed, you will find that they are trying to measure both inflation and interest rate changes. What is more important for them to monitor and target, inflation or interest rates?

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Targeting

Targeting is espoused by most economists, because it sets rules in motion rather than discretion (there is a large body of economics literature looking at "rules versus discretion"). It provides predictability, making decisions easier in the economy, and does indeed make the Fed's work more transparent. There are obviously disagreements on what to target. Monetarists believe that the money supply itself should be targeted (growing at a rate of 2% per year), while neoclassical economists tend towards inflation targeting and Keynesians believe that growth or unemployment should also be targeted. The worry that Central Bankers have about targeting is what happens when a major crisis or systemic ...

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