The need for time consistency Given its capabilities and bounds, it is desirable for monetary policy to focus on price stability. Effectiveness hinges on the authorities’ commitment to this goal. In addition, the strategy must be well understood by the public. Complexities are inherent in this endeavor. One is political pressure or principal-agent problems that call for deviation from the price stability target.
For instance, resistance to interest rate hikes is far stronger than to cuts, and it may sometimes come from interest groups with high stakes in the matter. Another complication might stem from the existence of more than one goal, which may make the rationale for monetary policy decisions hard to convey.