Inflation target regimes (like those of New Zealand, Canada, U.K. and Sweden) are interpreted as having explicit inflation targets and implicit employment targets. Without employment persistence, 'an inflation target-conservative' central bank eliminates the inflation bias, mimics an optimal...

A literature has grown up around papers by Kydland and Prescott (1977) and Barro and Gordon (1983) which shows how governments have an incentive to inflate the economy (to generate extra output) then the private sector will anticipate this and the economy will stick at a high inflation...