Inflation: failures of inflation targeting : a European perspective

Monetary policy became the major tool of economic policy to counteract the financial crisis of 2008/2009. The underlying macroeconomic consensus is that inflation rates of 2% are consistent with a stable rise of economic growth. While most central banks follow this guideline, which is widely supported by New Classical and New Consensus Macroeconomists, the impacts on asset price bubbles and uneven wealth distribution, as well fiscal impacts are neglected. Macroeconomic stability is not an outcome of inflation targeting. The paper firstly revises the theoretical background of inflation targeting and explains its theoretical shortcomings from a Post-Keynesian perspective. Secondly, the effects on wealth distribution and asset prices are discussed from a European perspective for the period of 2008/2009 to 2018. An alternative view on monetary policy is presented, which critically discusses the necessary framework under which tools of inflation targeting might work to stabilize the economy and develop a respective policy mix.