Several countries have the last 10-15 years changed from a money supply to inflation targeting in monetary policies, but not the US. Why not? Please Register or Log in to view the hidden image! Would it be too difficult to implement it in such a large economy? What are your thouhgts? This article/speech by Governor Edward M. Gramlich of the Federal Reserve Board explains a few things. http://www.federalreserve.gov/boarddocs/speeches/2005/20050526/default.htm I can post the whole article here if anyone wants me to, but as I am unsure of the norms, I haven't. Lien
No one really knows how much money is in a country, its all approximation or as the papers will say...speculation. Its difficult if you consider the ever imperfect balance of trade and the many counterfeit and illegal money floating around. The best way to do this is by counting the amounts of goods in the country but try getting that right too. For what its worth the money market is also a factor on the value of money. Anyway I guess inflation is not an immidiate trouble for the U.S because of the tremendous productivity.
Inflation is needed to normalize the cycle. Money needs to move from equities to bonds, and out of real estate. Inflation will precipitate the not-so random drift back to the historical means.
I am not sure what you are trying to say but inflation is never needed. Inflation is a result of greed and/or underproduction. In balance of trade if a country has exess money supply they sell it off at a cheaper price, making the currency relatively inflated as per compared to other currencies.
The point of inflation targeting is that you don't need to worry about the amount of money in the economy. It has a direct GDP - interest rate relationship. That is the reason many countries have gone to inflation targeting, to not have to worry about the money amount. It works through a demand-based macro-model, like a simple Keynes model. It also makes the economy more predictable than with other monetary policies. I think it would be a good idea in the US, but we'll see what happens...
