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The UK had inflation targeting. The US did not have explicit inflation targeting, but came fairly close in practice (de facto inflation targeting). But yes, it's not at all obvious that inflation targeting is the villain. Looking back, critics of Fed policy argue that it should have tightened monetary policy a few years ago, when asset prices were rising, even though consumer prices were not rising especially faster than normal.

I see it more as an argument to broaden the price index beyond consumer prices.

Or it might be that central banks forgot that they had broader responsibilities than just monetary policy in the narrow sense.

Sloppy wording in the article, I think – the comparison between the merits of explicit versus implied inflation targeting makes no sense, given the US outcome. But I can see a truth in it in terms of the attention allocated to a “focus on inflation” at the expense of other concerns related to financial stability. This is especially true in the US. Did Greenspan ever question such things by looking at a long term chart of real house prices or credit aggregates or the percentage of stock market capitalization devoted to the financial sector? We had a generally more prudent and better supervised regulatory environment in Canada so the question of the focus was less pressing.

"The US doesn't have inflation targeting"

Right. Stiglitz is right - the U.S. worried only about inflation/deflation and ignored other risks such as expanding debt, asset bubbles, excessive leverage, inequality and corruption.

A story based on poor supervision of financial markets certainly makes sense. But I don't see why there's a tradeoff between a prudent regulatory environment and an inflation target - the two notions are distinct.

Agreed that they are distinct concepts, but I think Stiglitz was saying that they focussed too much on inflation, neglecting everything else. Basically, I agree with JKH.

Could Stiglitz be referring to the ECB? They have been far to slow to cut interest rates, apparently out of misplaced fears of inflation.

Even so, they might be throwing the baby out with the bath: the problem with the ECB is wrongheaded policy implementation, not inflation targeting itself.

If we measured inflation honestly (Case-Schiller CPI?) and targeted that we might not have even had a housing bubble at all.

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