Problems with inflation targeting today. Are they due to the monetary theory of Knut Wicksell?
Welcome to the Felix Neubergh Lecture 2021 with professor emeritus Lars Jonung.
The Swedish economist Knut Wicksell (1851-1926) recommended a stable price level as the proper goal for monetary policy in his groundbreaking work published originally in 1898. His monetary theory, often labeled the cumulative process, is the intellectual foundation of inflation targeting, the best-practice approach to monetary policy across the world today.
Major central banks like the ECB, Federal Reserve and Bank of England aim at price stability, commonly expressed as a low pre-announced rate of inflation. Recently, inflation targeting has been the subject of a number of objections, most prominently the focus on price stability has been regarded as contributing to financial instability and financial crisis as reflected in the global financial crisis of 2008-09. In addition, central banks, like the Bank of Sweden, have failed for long periods of time to reach their inflation targets. Rising inequality has also been regarded as a consequence of present monetary policy.
Why have these problems emerged? In his lecture Lars Jonung will provide an answer by comparing the world envisioned by Wicksell in his original cumulative process to the world of today, characterized by advanced financial systems and well-developed asset markets. In this way, he will identify and explain the shortcomings that are associated with inflation targeting as it is implemented today. His comparison will also suggest how inflation targeting can be improved upon.
About Lars Jonung
Lars Jonung is professor emeritus at the department of economics at Lund University. He served as chairman of the Swedish Fiscal Policy Council, 2011-13. He was Research Advisor at DG ECFIN, European Commission, Brussels 2000-2010, professor in economics, Stockholm School of Economics (Handelshögskolan), 1988-2000, professor in finance at Lund University, 1987-88, Research Director at the National Institute of Economic Research (Konjunkturinstitutet), Stockholm, 1981-82. His research interests cover monetary economics, monetary and financial history, inflationary expectations, the euro, European integration and the economics of Knut Wicksell. He has published books and articles in English and Swedish and is the co-author of a leading macroeconomic textbook in Swedish. Jonung served as chief economic advisor to Prime Minister Carl Bildt in 1992-94. He holds a PhD in economics from the University of California, Los Angeles, 1975. He is active in the present debate on Swedish monetary and fiscal policy. His work is available at his research portal.