Credibility and Explicit Inflation Targeting

Marvin Goodfriend believed that low and stable inflation should be the primary objective of a modern central bank and it would lead to good real outcomes. In the early 2000s, he built a public case that the US should adopt an explicit inflation targeting system, which had been advocated earlier — both in the FOMC and in speeches — by Richmond Fed presidents Robert Black and Al Broaddus. In building his case, Goodfriend drew on his knowledge of monetary history and cutting-edge macroeconomic theory. He traced key episodes in US history to the lack of central bank credibility: the inflation of the 1970s, the costly disinflation of the 1980s, and the “inflation scares” of the early 1990s.