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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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Keywords: Inflation targeting; output stabilisation;

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References

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  1. Laurence Ball, 1998. "Policy Rules for Open Economies," NBER Working Papers 6760, National Bureau of Economic Research, Inc.
  2. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
  3. Svensson, L-E-O, 1996. "Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets," Papers 615, Stockholm - International Economic Studies.
  4. Lars E. O. Svensson, 1997. "Inflation Targeting: Some Extensions," NBER Working Papers 5962, National Bureau of Economic Research, Inc.
  5. Nargis Bharucha & Christopher Kent, 1998. "Inflation Targeting in a Small Open Economy," RBA Research Discussion Papers rdp9807, Reserve Bank of Australia.
  6. Caballero, R.J. & Hammour, M.L., 1991. "The Cleansing Effect of Recessions," Discussion Papers 1991_59, Columbia University, Department of Economics.
  7. Taylor, John B, 1979. "Estimation and Control of a Macroeconomic Model with Rational Expectations," Econometrica, Econometric Society, vol. 47(5), pages 1267-86, September.
  8. Benjamin M. Friedman & Kenneth N. Kuttner, 1996. "A price target for U.S. monetary policy? Lessons from the experience with money growth targets," Working Paper Series, Macroeconomic Issues WP-96-14, Federal Reserve Bank of Chicago.
  9. Laurence Ball, 1993. "The Dynamics of High Inflation," NBER Working Papers 4578, National Bureau of Economic Research, Inc.
  10. Laurence Ball, 1997. "Efficient rules for monetary policy," Reserve Bank of New Zealand Discussion Paper Series G97/3, Reserve Bank of New Zealand.
  11. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
  12. repec:fth:coluec:572 is not listed on IDEAS
  13. 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.
  14. 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.
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Cited by:
  1. 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.
  2. Robert Dixon & David Shepherd, 2006. "The Cyclical Dynamics and Volatility of Australian Output and Employment," Department of Economics - Working Papers Series 968, The University of Melbourne.
  3. Lars E.O. Svensson, 2002. "Monetary Policy and Real Stabilization," Working Papers 119, Princeton University, Department of Economics, Center for Economic Policy Studies..
  4. 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.
  5. 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, pages 57-75.
  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.
  7. António Portugal Duarte, 2005. "The Portuguese Disinflation Process: Analysis of Some Costs and Benefits," International Finance 0504005, EconWPA.
  8. 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.
  9. T.C.Y. Kam & G.C. Lim, 2001. "Interest Rate Smoothing and Inflation-Output Variabilityin a Small Open Economy," Department of Economics - Working Papers Series 817, The University of Melbourne.

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