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July/August 2004, 
Vol. 86, No. 4
Posted 2004-07-01

Inflation Targeting and Optimal Monetary Policy

by Michael Woodford

The author surveys the theoretical literature on optimal monetary policy. He concludes that the recent literature on the welfare consequences of alternative monetary policies finds that there is less tension between inflation stabilization and properly defined real stabilization objectives than traditional (nonwelfare-theoretic) literature on monetary stabilization policy has often suggested. He notes that is not a bad first approximation to say that the goal of monetary policy should be price stability but that there are some instances where deviations from perfect price stability is optimal policy.





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