ContentArticlesinEconomicsTeachingInflationTargeting.pdfVIP

Content Articles in Economics In this section, the Journal of Economic Education publishes articles concerned with substantive issues, new ideas, and research findings in economics that may influence or can be incorporated into the teaching of economics. HIRSCHEL KASPER, Section Editor Teaching Inflation Targeting: An Analysis for Intermediate Macro Carl E. Walsh Abstract: Over the last decade, many central banks have adopted policies known as inflation targeting. If intermediate-level macroeconomics students are to be prepared to think about current policy issues, it is important to provide them with an introduction to the macroeconomic implications of inflation targeting. Unfor- tunately, the standard aggregate demand–aggregate supply frameworks com- monly used to teach intermediate macroeconomics are not well suited for this task because they are expressed in terms of output and the price level and because they fail to make explicit the policy objectives of the central bank. The author provides a simple graphical device involving the output gap and the inflation rate that overcomes these problems and that can be used to teach intermediate macro- economics students about inflation targeting. Key words: central bank policy, inflation targeting, intermediate macro JEL codes: E42, E52, E58 Over the last decade, many central banks have adopted monetary policies known as inflation targeting. New Zealand, the United Kingdom, Sweden, Cana- da, Mexico, and Israel are among the countries employing inflation targeting in the conduct of monetary policy, and the European Central Bank has been urged to follow suit (Svensson and Woodford 1999). If intermediate-level macroeco- nomics classes are to prepare students to think about current policy issues, it is Carl E. Walsh is a professor of economics at the University of California, Santa Cruz, and Visiting Scholar, Federal Reserve Bank of San Francisco (e-mail: walshc@ca