Yes, say Minneapolis Fed president Gary Stern and vice president Preston Miller, in a new article titled "Avoiding Significant Monetary Policy Mistakes."
In this article, we consider a related issue of whether the FOMC policy framework is sound or, alternatively, it was rescued by good luck. In particular, we ask, Do the current policy procedures of the FOMC lead to too much risk of a bad inflation outcome? We argue that they do, and we then propose a type of inflation targeting to contain the risk.
Stern and Miller go beyond the case made by many -- in this discussion by Ben Bernanke, or this one by Don Kohn, for example -- that inflation targeting can enhance an otherwise successful policy, arguing instead that Fed policymakers may have been more lucky than good.
For some time, the United States has experienced a fairly steady, low rate of inflation. However, some investigators attribute a majority of this apparent monetary policy success to surprisingly strong growth in productivity and to inexpensive imports stemming from weak foreign economies. If monetary policy played a relatively minor role, it also follows that monetary policy could have erred on the side of ease and that those errors could have been covered by favorable outcomes for productivity and foreign trade. Thus, the appropriateness of FOMC procedures cannot be judged solely on the recent record with respect to inflation.
Much of the article is spent discussing the case for maintaining the rate of inflation somewhere in the vicinity of zero, and against smoothing fluctuations in real GDP. In fact, Stern and Miller would only begrudgingly concede a role for "leaning against the wind."
We have argued that the economy operates best over time when the inflation rate is within a few percentage points above or below zero. So, as long as countercyclical policy does not push inflation outside of this range, we do not believe it will do much harm.
Inflation targeting it is, then, but the authors are relatively agnostic on what form it takes.
The mechanism we prefer is a form of inflation targeting. Although two methods of achieving this end have been proposed, we believe under best practices,there is little difference between the two. One method is adoption of a nominal anchor, and the other is inflation-expectations targeting.
Each method requires the establishment of a range for a specified variable. If the variable is within its range, policy is free to stabilize output. However, policy is constrained to not let the variable move outside its range. For nominal anchoring, the variable is an observed nominal variable, such as a measure of money. For inflation- expectations targeting, the variable is a prediction of inflation over some multiyear horizon.
Under best practices, a nominal anchor should have a stable long-term relationship with inflation. Ideally,the anchor would provide policymakers with a reliable signal: if the anchor stays within its range, then inflation down the road will stay within its desired range. Policymakers then could attend to smoothing the real economy as long as the anchor was within its range.
Note that Stern and Miller focus on targets that are indicators of future inflation. My sense is that this might differentiate their proposal from other inflation-target schemes, which generally express targets in terms of a direct inflation measure, reserving indicator variables as a basis for policy adjustments and communications policy.