Finland paper advocates partial commitment to inflation targeting

A Bank of Finland discussion paper says there is a ‘real danger' of policy-makers fully committing to an inflation-targeting regime.

The author, George Waters, acknowledges using interest rates to counter movements in price levels – a lagged variable – can be an important tool. However, the author said, the degree to which policy-makers should commit to this approach depends on how expectations form and how accurately they are estimated.

There is the potential for "very poor outcomes" if the