While most inflationtargeting agreements already allow for some flexibility in the time period over which the target is achieved, whether there is sufficient flexibility and willingness to act in situations that might require even greater forbearance is an open question that has yet to be tested.
The central issue that remains is whether monetary authorities should be expected to go further than the prescripts of flexible, forward-looking inflation targeting would suggest. 22 If so, what form would it take? Should the inflation-targeting agreement itself, or the central bank’s reaction function, give explicit recognition to asset prices and credit growth? Would this prejudice the clarity of the current targets?