Leijonhufvud takes on Inflation Targeting

Monetary Economist Axel Leijonhufvud (who wrote one of the funniest pieces about economics ever) is not enthralled with inflation targeting. Here is a tidbit:

With the demise of Monetarism, more and more central banks around the world have come to adopt a policy strategy known as ‘inflation targeting.’ This is the case, for example, with the European Central Bank, the Bank of England, and the Swedish Riksbank. The Central Bank of New Zealand was a pioneer in committing itself publicly to this policy. Some other important
central banks, such as the Federal Reserve System of the United States and the Bank of Japan, have not officially declared inflation targeting as their strategy, but they have behaved as if it were, and the markets have believed that to be the case. Many influential advocates of this policy have argued that keeping the inflation rate very low and maintaining it within a very narrow band of variation should bea central bank's exclusive goal. If it is known that this is the Bank's exclusive objective, its policies will be transparent and, the proponents believe, as long as the markets understand clearly what the monetary policy is, they will take care of other matters, such as unemployment, as well as can be. If, on the other hand, the central bank from time to time trades off unemployment versus inflation, or one of the two versus the exchange rate, the private sector will not be certain what is going on and this will lead to various mistakes and inefficiencies. I have a number of reservations concerning this fashionable policy doctrine. In particular, I maintain that stabilising the consumer price index (or its rate of growth) does not guarantee stability of the financial system. Moreover, under certain conditions, concentrating on year-to-year monetary stability, in the sense of keeping to a CPI inflation target, can lead you to follow policies that are inimical to financial stability over the longer run.