Formally adopting inflation targeting can lead to
A) a short run recession.
B) long run price stability.
C) a loss of independence for the central bank.
D) all of the above.

Question

Quizplus · Accepted Answer

Formally adopting inflation targeting can lead to a short-run recession as the central bank may need to raise interest rates to control inflation, which can slow economic growth. In the long run, it can lead to price stability as inflation expectations become anchored around the target. However, it can also lead to a loss of independence for the central bank, as it must commit to a specific inflation target, potentially limiting its flexibility in responding to economic changes.

Formally Adopting Inflation Targeting Can Lead to