If a central bank persistently fails to deliver the target inﬂation rate, then long-term inﬂationary expectations are likely to be different from the target rate.

Question

Quizplus · Accepted Answer

If a central bank consistently fails to achieve its target inflation rate, it's likely to erode the public's confidence in the central bank's ability to meet its inflation target. Consequently, people will come to expect higher levels of inflation, which can lead to higher inflation in the long run. Therefore, if the central bank persistently fails to deliver the target inflation rate, long-term inflation expectations are likely to differ from the target rate.

If a Central Bank Persistently Fails to Deliver the Target