Nevertheless, across the board their primary objective was price stability – defined as a stabilisation of the inflation rate at around 2% across a horizon of approximately two years. Steering short-term interest rates was considered a sufficient means of achieving this target.
Central bank forecasts played a key role in monetary policy decision-making, with monetary aggregates increasingly taking a back seat in many forecast models. Furthermore, capital markets were mostly assumed to be efficient, meaning that financial imperfections and their potential macroeconomic effects were not taken into account.