Price Stability and Intermediate Targets for Monetary Policy

Monetary policy strategy in Portugal has been presented in recent years as pursuing the final goal of price stability through an exchange rate stability target. This paper argues that a central bank committed to the goal of price stability - meaning low inflation in the medium/long run - can successfully control average inflation in the economy drawing up a strategy that involves an intermediate monetary target (exchange rate or money). Arguments in favour of the use of an intermediate monetary target in terms of communication strategy are briefly discussed.