The Future of Inflation Targeting
As an academic economist, the current chairman of the Federal Reserve, Ben Bernanke, was a leading advocate of inflation targeting. But as chairman he has been more flexible, tolerating higher inflation temporarily to reduce the risks of severe recession and a credit crisis. We speak to a leading monetary economist and one of Bernanke's research colleagues on the theory of inflation targeting today. He argues that there are indeed good reasons to be more flexible about inflation under some circumstances and that the theory of inflation targeting is evolving.