Central banks: Towards “average inflation targeting”?

Central banks commonly practise inflation targeting: their objective is to stabilise expected future inflation, with a horizon of one to one-and-a-half years or so. A proposal is currently being made in favour of moving to “average inflation targeting”, under which the aim for the central bank would be to stabilise average inflation over a period of time, centred on the present and including both the past (for example the previous two years) and the future (for example the next two years, i.e. expected inflation). Average inflation targeting would be a step in the direction of “price level targeting”: if inflation has been lower than the target (normally 2%) in the past, then it must be higher than the target in the future. This would: Lead the central bank to conduct a sustained expansionary monetary policy if inflation has been low, even if it start s to become higher than the target; Be effective if financial markets understand that monetary policy wants to obtain above-target inflation, as expected inflation would then rise, which would offer a way out of the situation of abnormally low inflation.