Working Paper: CEPR ID: DP6252
Authors: Marc Flandreau
Abstract: This paper studies the evolution of monetary policy targets over the course of the past 200 years. We argue that policy targets are set as part of an assignment procedure that is intended to address both time consistency and monitoring problems. As a result, central banks, after having been assigned to target the exchange rate in the 19th century, are now entrusted with targeting the rate of inflation. Critical advances in the measurement of inflation have proved decisive in bringing about this radical transformation.
Keywords: Central banks; Exchange rates; Inflation; Monetary policy targets
JEL Codes: B1; E1; E3; E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exchange rate targeting (F31) | inflation targeting (E31) |
| time consistency and monitoring problems (E61) | inflation targeting (E31) |
| improved ability to measure inflation (E31) | inflation targeting (E31) |
| independent central banks (E58) | credibility of monetary policy (E52) |
| historical challenges faced by monetary authorities (E58) | current debates surrounding monetary policy (E52) |