Some versions require a central bank to focus on inflation alone and set monetary policy so that the forecast rate of inflation is equal to the target. But inflation targeting does not need to be rigid like this. In my view, an inflation targeting regime should consist of the following four elements. 1.
The inflation target should establish a clear and credible medium-term nominal anchor for the economy. A high degree of uncertainty about future inflation hurts both investment and jobs. The economy works best if there is a degree of predictability. Most people can cope with some variation in the inflation rate from year to year.