Similarly, strategies such as nominal GDP level targeting would fail unless they are well understood by the public and the central bank is highly credible.10, 11 With no easy way out, the basic challenge for central banks is to maintain price stability in order to help sustain nominal aggregate demand during the period of real adjustment.
In the Bank’s view, that is best accomplished through a flexible inflation-targeting framework, applied symmetrically, to guard against both higher inflation and the possibility of deflation. The most palatable strategy to reduce debt is to increase growth. In today’s reality, the hurdles are significant.