Finland paper advocates partial commitment to inflation targeting

Bank of Finland study warns of dangers involved in ‘over-committing’ to interest rate adjustments in reaction to price changes; suggests short-term reactions may be appropriate

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 response is excessive, the author added. In a case where usual rule-based procedures do not apply, including when interest rates approach the zero lower bound, a short-run price level target is more appropriate to allow for an unanticipated shift in the way the public forms expectations.

Click here to read the paper.

  • LinkedIn  
  • Save this article
  • Print this page  

Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.

To access these options, along with all other subscription benefits, please contact [email protected] or view our subscription options here:

You are currently unable to copy this content. Please contact [email protected] to find out more.

You need to sign in to use this feature. If you don’t have a Central Banking account, please register for a trial.

Sign in
You are currently on corporate access.

To use this feature you will need an individual account. If you have one already please sign in.

Sign in.

Alternatively you can request an individual account here: