The Future of Inflation Targeting* (original) (raw)

2 Inflation targeting as a policy framework

2010

By the end of the Great Moderation, over two dozen central banks were formal inflation targeters, and others, such as the Federal Reserve, the European Central Bank, and the Swiss National Bank behaved essentially as inflation targeters even though they were resistant to identifying themselves as such. However, the past three years have seen central banks faced with new challenges, and these have raised questions about the future of inflation targeting as a framework for the conduct of monetary policy. I consider three suggested modifications to this policy framework: incorporating additional goals among a central bank’s objectives; raising the average target for inflation; and switching to price level targeting.

Twenty Years of Inflation Targeting

2009

There is now a remarkably strong consensus among academics and professional economists that central banks should adopt explicit inflation targets and that all key monetary policy decisions, especially those concerning interest rates, should be made with a view to ensuring that these targets are achieved. This book provides a comprehensive review of the experience of inflation targeting since its introduction in New Zealand in 1989 and looks in detail at what we can learn from the past twenty years and what challenges we may face in the future. Written by a distinguished team of academics and professional economists from central banks around the world, the book covers a wide range of issues including many that have arisen as a result of the recent financial crisis. It should be read by anyone concerned with better understanding inflation targeting and its past, present and future role within monetary policy.

Review of "The Future of Inflation Targeting"

This volume of papers from the Reserve Bank’s annual conference in 2004, bringing together academics and central bankers to discuss inflation targeting, provides a very useful guide to the issues, being rigorous while remaining grounded in the reality of policy-making

The Unravelling of Inflation Targeting

Economic and Political Weekly

Inflation targeting as currently conducted by central banks in both developed and developing economies is breaking down. In the developed countries it is stymied by asset and credit bubbles and in developing countries inflation targeting has been disrupted by the source of inflationary pressures and volatile capital flows. Developing countries need to find ways of targeting non-core inflation, and also need to devise a separate policy instrument to target the external financial cycle.

The Past and Future of Inflation Targeting

2016

Inflation targeting (IT) was started in 1990 and spread subsequently to 35 other advanced and emerging/developing countries until now. Drawing from existing and new research, this paper takes stock of IT’s past performance and limitations, and discusses its main challenges to remain the monetary regime of choice in the future. Adopting and developing IT takes different forms but central banks gradually converge to a common policy framework – although the framework itself continues evolving over time. There is significant evidence on the success of IT – in particular for emerging economies and lower income countries – in improving central banks’ institutional set-up, conduct of monetary policy, and macroeconomic performance. The last decade presented the greatest challenges to IT, due to the commodity price shock of 2006-07 and then the Global Financial Crisis and its aftermath. The future of IT in general, and in developing countries in particular, will be determined by how well cen...

INFLATION TARGETING: NEITHER NEW NOR EFFECTIVE

Current inflation targeting policies are not something new, nor have they been effective in preventing the boom and bust cycles produced by discretionary monetary management. As Rothbard shows, the 1920’s monetary policies anticipated by sixty years the strategy of conducing a policy primarily aiming at securing a given inflation level, and of using discretion in the management of the money supply.

Inflation Targeting: What Have We Learned?

International Finance, 2009

Inflation targeting has been widely adopted in both developed and emerging economies. In this essay, I survey the evidence on the effects of inflation targeting on macroeconomic performance and assess what lessons this evidence provides for inflation targeting and the design of monetary policy. While macroeconomic experiences among both inflation targeting and non-targeting developed economies have been similar, inflation targeting has improved macroeconomic performance among developing economies. Importantly, inflation targeting has not been associated with greater real economic instability among either developed or developing economics. While costs shocks, such as the large rise in commodity prices that occurred in 2007 and early 2008, force central banks to make difficult short-run trade-offs, the ability to deal with demand shocks and financial crises can be enhanced by a commitment to an explicit target.

Inflation Targeting as a Monetary Policy Framework: A Critical Appraisal

Inflation targeting has been adopted as a monetary policy framework by many economies – particularly emerging and advanced countries. Although several researchers have argued that it is a recommended policy measure to curb inflation in a prospectively high inflation-saddled economy, other scholars think otherwise. A critical review of the arguments for and against inflation targeting as a tool of ensuring price stability in presented in this paper. Accordingly, the paper points out that the targeting framework has been established and proven effective in several countries, but it is arguably not satisfactory enough. The paper recommends that a realistically attainable percentage – usually a flexible target range and a time-lag for achieving the target should be set. This is because over-ambitiousness on the part of monetary authorities can invariably lower the economic prestige, credibility and monetary policy independence of a country particularly if the set-target becomes unattainable. Notwithstanding, developing countries need to create an enabling environment in terms of strong financial markets and commitment to price stability alongside establishing a well-developed forecasting framework in order to reach the desired effects of inflation targeting .

Inflation targeting hits the wall

2012

The financial-market crisis is not over but has grown into a vicious sovereign-debt crisis. Nevertheless, monetary policy makers of the major economies go on to practice the same sort of policy that has led to the crisis. Following the model of inflation targeting, they continue to disregard the quantity of money and the amount and kind of credit creation. As they did before, central bankers cut interest rates as low as they can. Few seem to remember that the monetary-policy concept of inflation targeting was adopted with the promise that low and stable inflation rates would produce financial and economic stability. Reality has not confirmed this assurance. On the contrary, inflation targeting was instrumental in bringing about the current financial crisis.