Quote

I have never believed that central banks should have rigid inflation targeting. That is not a good thing to stabilize. There is nothing in economic theory to back this.

Avoiding inflation is not an absolute imperative but rather is one of a number of conflicting goals that we must pursue and that we may often have to compromise.

The principle that a central bank, charged with controlling inflation, should be independent from the government is unassailable. It may also be true that it's easier for the central bank to guard its independence from political pressure when it mainly holds government securities.

I will say this: the central banks can actually support growth beyond a point. When there is no inflation, they can cut interest rates, and that is the way they support growth, but if you cut interest rate to the bone, there is nothing more to cut. It is very hard to support growth beyond that.

The government will always tell you that it wants low inflation. The real issue is the horizon over which to bring inflation down.

However, in spite of the general perception that monetary policy should be conducted so as to avert deflation, a central bank cannot lower interest rates below the zero lower bound.

The Federal Reserve has an official commitment to two different policies. One is to prevent inflation from getting too high. The second is to maintain high employment... the European Central Bank has only the first. It has no commitment to keep employment up.

You can't have a regime which continuously subsidizes things; as inflation rises, you keep prices of certain things unchanged.

Of course, looking tough on inflation is part of any central banker's job description: if investors believe that inflation is going to get out of control, you end up with higher interest rates and capital flight, and a vicious circle quickly ensues.

I think the Fed is not designed to have effective tools to deal with the economy. It should settle for just controlling the money supply. And - if it insists, it can worry about inflation.