Hence, the notion of “constrained discretion”. It is a reminder, if you like, that whatever you do in economic policy must be able to pass through the filter of common sense.
You must always keep your eyes open and wits alert, taking in all the signals which the economy is giving.2 In broad-brush terms, the change which has come about in the specification of inflation targeting regimes comes from the recognition that if the inflation target is specified narrowly and the time horizon over which it must be achieved is tight, then the effort to keep the actual inflation rate constantly within a narrow band will involve quite a bit of short-term variation of the interest rate lever (and, consequentially, the exchange rate), and policy will be jerking output around disruptively, probably unnecessarily.