What is the difference between an inflation target and a price stability target?

What is the difference between an inflation target and a price stability target Introduction: The Significance of Monetary Policy Hello everyone! Welcome to today's video, where we'll be discussing the difference between an inflation target and a price stability target. But before we dive into the specifics, let's take a moment to understand the broader context. Monetary policy, in simple terms, refers to the actions taken by a central bank to manage the money supply and interest rates in an economy. It plays a pivotal role in influencing economic growth, employment, and price stability. Today, we'll be focusing on two key approaches within monetary policy: inflation targeting and price stability targeting. Defining Inflation Targeting: A Numbers Game Inflation targeting, as the name suggests, revolves around a central bank's commitment to maintaining a specific inflation rate. This is typically done through the adjustment of interest rates. The chosen inflation target is often expressed as a percentage, and central banks strive to keep actual inflation as close to this target as possible. The rationale behind this approach is that a moderate level of inflation can be beneficial for an economy, promoting spending and investment. However, if inflation rises too high or falls too low, it can have adverse effects, such as eroding purchasing power or dampening economic activity. Price Stability Targeting: A Broader Objective