To do so, banks have drawn on each other’s experiences. One fundamental issue is how to define price stability, which is the primary objective of monetary policy. This involves striking a balance between the need for clarity and the need for monetary policy flexibility. Each country has worked out its own solution to this tricky problem.
A number of countries, including the United Kingdom, have adopted a policy of inflation targeting, whereby the central bank sets a target inflation rate. In this case, measures are adopted gradually to ensure sufficient flexibility.