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Inflation Targeting and Output Stabilisation

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  • Guy Debelle

    (Reserve Bank of Australia)

Abstract

Inflation targeting has been criticised for being ‘inflation only’ targeting and hence, for ignoring output and employment. This paper argues that this criticism is misplaced. The inflation-targeting framework has sufficient flexibility to allow for the short-run trade-off between output and inflation. The extent to which it does so in part reflects some design features of the inflation-targeting framework, such as targeting bands and the policy horizon, that have been adopted in practice in the inflation-targeting countries. Medium-term price stability can be maintained while still allowing some degree of short-run inflation variability, thus providing scope for lower output variability.

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Bibliographic Info

Paper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp1999-08.

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Date of creation: Jun 1999
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Handle: RePEc:rba:rbardp:rdp1999-08

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Related research

Keywords: Inflation targeting; output stabilisation;

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References

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  1. Laurence Ball, 1998. "Policy Rules for Open Economies," RBA Research Discussion Papers rdp9806, Reserve Bank of Australia.
  2. Laurence Ball, 1997. "Efficient Rules for Monetary Policy," NBER Working Papers 5952, National Bureau of Economic Research, Inc.
  3. Benjamin M. Friedman & Kenneth N. Kuttner, 1996. "A Price Target for U.S. Monetary Policy? Lessons from the Experience with Money Growth Targets," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 77-146.
  4. Laurence Ball, 1993. "The Dynamics of High Inflation," NBER Working Papers 4578, National Bureau of Economic Research, Inc.
  5. Caballero, Ricardo J & Hammour, Mohamad L, 1994. "The Cleansing Effect of Recessions," American Economic Review, American Economic Association, vol. 84(5), pages 1350-68, December.
  6. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
  7. Laurence Ball, 1993. "What Determines the Sacrifice Ratio?," NBER Working Papers 4306, National Bureau of Economic Research, Inc.
  8. Bean, Charles, 1998. "The New UK Monetary Arrangements: A View from the Literature," Economic Journal, Royal Economic Society, vol. 108(451), pages 1795-1809, November.
  9. Svensson, L-E-O, 1996. "Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets," Papers 615, Stockholm - International Economic Studies.
  10. Lars E. O. Svensson, 1999. "Inflation Targeting: Some Extensions," NBER Working Papers 5962, National Bureau of Economic Research, Inc.
  11. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  12. King, Mervyn, 1997. "Changes in UK monetary policy: Rules and discretion in practice," Journal of Monetary Economics, Elsevier, vol. 39(1), pages 81-97, June.
  13. Nargis Bharucha & Christopher Kent, 1998. "Inflation Targeting in a Small Open Economy," RBA Research Discussion Papers rdp9807, Reserve Bank of Australia.
  14. repec:fth:coluec:572 is not listed on IDEAS
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Cited by:
  1. Douglas Laxton & Andrew Berg & Philippe D Karam, 2006. "A Practical Model-Based Approach to Monetary Policy Analysis--Overview," IMF Working Papers 06/80, International Monetary Fund.
  2. Javier Hernandez & Allan Layton, 2002. "The Regional Appropriateness of Monetary Policy: An Application of Taylor’s Rule to Australian States and Territories," School of Economics and Finance Discussion Papers and Working Papers Series 115, School of Economics and Finance, Queensland University of Technology.
  3. António Duarte, 2009. "The Portuguese Disinflation Process: Analysis of Some Costs and Benefits," Transition Studies Review, Springer, vol. 16(1), pages 157-173, May.
  4. Marjan Petreski, 2011. "A Markov Switch to Inflation Targeting in Emerging Market Peggers with a Focus on the Czech Republic, Poland and Hungary," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3.
  5. Ferya Kadioglu & Nilufer Ozdemir & Gokhan Yilmaz, 2000. "Inflation Targeting in Developing Countries," Discussion Papers 0006, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  6. Guy Debelle, 2001. "The Case for Inflation Targeting in East Asian Countries," RBA Annual Conference Volume, in: David Gruen & John Simon (ed.), Future Directions for Monetary Policies in East Asia Reserve Bank of Australia.

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