INFLATION TARGETING - WHAT CAN THE ECB LEARN FROM THE RECENT EXPERIENCE OF THE BANK-OF-ENGLAND

Establishment of the European Central Bank presents a rare opportunity to define the operations of a central bank without a prior track reco rd. This paper asks what might Ire learnt from the recent experience o f inflation targeting at the Bank of England before the ECB specifies an, as yet undefined, operational target. We consider whether there sh ould be single or multiple targets and which inflation measure should be used, if at all. If inflation is targeted then a forecast of its va lue becomes the intermediate variable. This raises an issue of transpa rency and the compensating supply of information necessary to fill the gap, but too much 'openness' can also be problematic. The ECB must be accountable and the contracting approach may be useful although being seen to 'say' and 'do' the same thing is ultimately most important.