Notwithstanding their record on price stability, the crisis has dented the credibility of central banks. The blame on central banks is wide ranging – loose monetary policies coupled with neglect of asset price developments, exclusive focus on inflation to the detriment of financial stability and lax and inept regulation that failed to keep pace with innovation.
Depending on the speed of price changes and tightness of supply and demand conditions, there might be a situation where an appropriate policy response would be called for before the price index reached the target. The currently prevailing argument for inflation targeting includes dissipating the current excessive deflationary expectations of the public by raising their inflationary expectations.