Central Bank Targets

Politicians like to pretend that central banks are independent of the government in that they are not subject to political interference when it comes to making monetary policy. Governments may have incentives to use monetary policy for their own ends rather than the good of the economy, which results in a political business cycle. In order to commit to not interfering in this way, governments grant central banks operational independence and require them to hit a target. For about two decades many central banks around the world have had an inflation target. But the flatlining of economic growth in many economies is causing governments and central bankers to rethink this target - click here for Stephanie Flanders' post on this.

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