More transparent monetary policy has a number of advantages. Recently, many central banks have recognized these advantages and have moved toward making their monetary policies more transparent. The Federal Reserve has made some progress on this front but generally has lagged behind some other central banks. A number of criticisms have been directed at the strategy of mandating price stability as the primary goal for monetary policy. These criticisms have been addressed in this paper and shown not to withstand scrutiny.
Price stability remains a viable policy goal.
Inflation is not necessary to foster labor market adjustment and may work to remove existing wage flexibility. Price stability, on the other hand, likely would work to promote such flexibility. Price stability, however, does minimize the need for such stimulative policy. The CPI remains a viable price index measure suitable for use as an inflation target. Despite some measurement bias, the CPI has many advantages which outweigh its disadvantages.