Abstract

This work aims at presenting the challenges that inflation targeting central banks may face since uncertainties represent a harmful element for the effectiveness of monetary policy, and since financial instabilities may disturb the transmission mechanisms – in particular, the expectation channel – and thus the economic stability. Financial stability must not be considered as a simple goal of monetary policy, but a precondition for central banks operate their policies and reach the goals of inflation and output stability. The work identifies different sources of uncertainties that surround central banks’ decisions; and approaches the role that inflation targeting central banks should play according to some basic principles that can serve as useful guides for central banks to help them achieve successful outcomes in their conduct of monetary policy.

JEL classification: E52; E58; E61.