Monday, August 24, 2009

Inflation targeting scorecard

Interesting graphic from Rebecca Wilder, which compares the relative performances of the US Federal Reserve, Bank of England (BoE), Bank of Canada (BoC), and European Central Bank (ECB) in keeping actual inflation within their respective target rates or bands.



In the period 1992-2008, the BoC and the BoE were the most successful at targeting inflation, with average annual inflation equal to 1.86% and 1.96%, against their targets of 1-3% and 2% respectively. The ECB over-shot its target rate of 2% by 0.2 percentage points, whereas the US Fed was the least effective - the annual inflation rate averaged 2.5%, against a central tendency of 1.7-2% (there is no specific taraget rate, and the mandate is to promote high employment, stable prices, and moderate long-term interest rates).

Update 1
See this chronicle of the evolution of inflation targetting from being pre-emptive (based on money supply growth) to reactive (based on economic indicators).

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