“Inflation targeting” has not yet been replaced by another theory

The Federal Reserve, the ECB and the Bank of England still use “inflation targeting”: they aim for an inflation target at a 1-1.5 year horizon, so as not to lose their credibility. They may have introduced some flexibility, however, in calculating the inflation target. That means they will now have to raise interest rates more than financial markets expect, especially in the euro zone and the United Kingdom. Only one major central bank has adopted a different theory: the Bank of Japan. The Bank of Japan has adopted "yield curve control", which aims to give fiscal policy a free hand and to use the non-indexation of wages to prices as a tool to fight inflation, which curbs domestic demand when there is inflation. Could other central banks switch to yield curve control, with a target of virtually zero long-term interest rates? We do not believe this is possible: Non-indexation of wages to prices would not be socially accepted; The lack of control over the quantity of money and the resulting financial instability (asset price bubbles, excessive credit growth, exchange rate instability) would have to be accepted.