As Bank research has shown, if these conditions do not fully hold, these approaches could in fact prove destabilizing to the economy and damaging to the central bank’s credibility.8 Moreover, there are reasons why central banks have preferred to support employment and output by targeting price stability, rather than more directly through an approach like nominal GDP targeting.
Central banks can neither determine the appropriate path for these real variables nor control them over the long run, and pretending they can could have negative consequences for economic stability and central bank credibility.