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Inflation targeting: central bank practice overseas

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  • Jane Sneddon Little
  • Teresa Foy Romano
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    Abstract

    This policy brief, which is based on an internal memo, summarizes the institutional and operational features observed in the 27 countries that have gained experience with inflation targeting (IT). It finds considerable convergence in many IT practices across countries over the past 10 to 15 years but much variation in policymakers’ choices concerning such key issues as how they treat the borders of the target range. On the whole, most IT banks have chosen to practice inflation targeting in a more flexible and, thus, resilient fashion than many analysts once feared—seemingly without much loss of credibility. Currently, however, after a prolonged period of rapidly rising commodity and asset prices, followed by a period of sharp oil and asset price declines, IT is clearly facing the greatest challenges in its short history of relatively widespread use. Fortunately, one key lesson that emerges from our experience to date is that much of the ability of inflation targeting to help moor inflation expectations likely stems from the premium it places on improving transparency standards. These standards are available to all central banks, whether they choose to practice inflation targeting or not.

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    Bibliographic Info

    Article provided by Federal Reserve Bank of Boston in its journal Public Policy Brief.

    Volume (Year): (2008)
    Issue (Month): ()
    Pages:

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    Handle: RePEc:fip:fedbpb:y:2008:n:08-1

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    Related research

    Keywords: Inflation targeting ; Banks and banking; Central;

    References

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    1. Vega, Marco & Winkelried, Diego, 2004. "Inflation Targeting and Inflation Behavior: A Successful Story?," MPRA Paper 838, University Library of Munich, Germany.
    2. Laurence Ball & Niamh Sheridan, 2003. "Does Inflation Targeting Matter?," NBER Working Papers 9577, National Bureau of Economic Research, Inc.
    3. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
    4. Refet S. Gürkaynak & Andrew T. Levin & Eric T. Swanson, 2006. "Does inflation targeting anchor long-run inflation expectations? evidence from long-term bond yields in the U.S., U.K., and Sweden," Working Paper Series 2006-09, Federal Reserve Bank of San Francisco.
    5. Janet L. Yellen, 2006. "Enhancing Fed credibility," Speech 18, Federal Reserve Bank of San Francisco.
    6. Levin, Andrew T. & Natalucci, Fabio M. & Piger, Jeremy M., 2004. "Explicit inflation objectives and macroeconomic outcomes," Working Paper Series 0383, European Central Bank.
    7. Stephen G. Cecchetti & Michael Ehrmann, 1999. "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes," NBER Working Papers 7426, National Bureau of Economic Research, Inc.
    8. Janet L. Yellen, 2006. "Enhancing Fed credibility," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar17.
    9. Manfred J.M. Neumann & Jrgen von Hagen, 2002. "Does inflation targeting matter?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 127-148.
    10. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?," NBER Working Papers 8397, National Bureau of Economic Research, Inc.
    11. Scott Roger & Mark R. Stone, 2005. "On Target? The International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
    12. Brash, D., 1998. "Inflation Targeting in New Zealand: Experience and Practice," Papers 641, Stockholm - International Economic Studies.
    13. Brash, Donald, 1998. "Inflation Targeting in New Zealand: Experience and Practice," Seminar Papers 641, Stockholm University, Institute for International Economic Studies.
    14. Donald Brash, 1998. "Inflation targeting in New Zealand: experience and practice," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 61, September.
    15. Charles Bean, 2004. "Inflation Targeting: The UK Experience," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 5(4), pages 405-421, November.
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