Inflation expectations may be sensitive to a large but temporary shock that moved inflation outside the range within which it has remained for some years. With their belief in stability jolted, households’ inflation expectations might move by much more than was justified by the temporary nature of the shock. That would make it more difficult for the central bank to bring inflation back to target. The moral of this particular story is that it may be risky to infer from the observation that inflation expectations are stable that all is well. There will be times when large and persistent shocks occur, and it would be unwise to count on inflation expectations remaining stable when actual inflation starts to deviate substantially from its recent range. So those are the three lessons that I have learnt from Alan: (i) a recognition that economics is not a set of doctrines but a way of thinking; (ii) the importance of using qualitative and quantitative information from a range of sources; (iii) there are a small number of fundamental objectives that are crucial and which we can judge by the Greenspan yardstick of whether we have freed businesses and households from the burden of expending resources to deal with unnecessary policy volatility. Alan’s departure from the central banking scene will deprive us of a source of wisdom, inspiration and leadership. To be sure, Alan’s words, whether spoken or written, will surely still reach us from the sidelines.
Alan, of course, has stressed this in the context of price stability. But it applies  1  Transcript of FOMC meeting 21/05/1996. BIS Review 56/2005  1  equally well to the system of taxes, property rights and public goods provision on which prosperity in a market economy relies. Alan famously defined price stability in the following terms: “price stability is best thought of as an environment in which inflation is so low and stable over time that it does not materially enter into the decisions of households and firms.” 2 I would suggest that implicit in this is a prescription that Alan might write for all economic policies, not just monetary policy: namely, that economic policy stability is best thought of as an environment in which the decisions of households and firms are not materially affected by the need to insure against future arbitrary or mischievous changes in government policy. Just as Alan would define a good monetary policy as one which leads people to stop talking about inflation, I think he would call a good tax policy one under which people stop talking about the tax system. In the last decade we have had a debate about whether such stability should be implemented by quantitative targets or not. In monetary policy we have seen the spread of ‘inflation targets’, and targets have begun to permeate other areas of economic policy too. You will not be surprised to learn that I think that such numerical targets have a role.