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Inflation Targeting, Between Rhetoric and Reality. The Case of Transition Economies

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  • Daniel Daianu
  • Laurian Lungu

Abstract

The paper examines the inflation targeting regime in the context of transition economies. Recent years have witnessed an increasing number of central banks in these countries moving towards the implementation of inflation targeting regimes. However, the success of such a regime depends largely on the degree to which certain general requirements are met. As experience in a number of transition economies has shown so far, targeting inflation is not an easy task. The ongoing restructuring process in these economies makes the inflation forecasting process more difficult and introduces an additional source of uncertainty in the system. By unequivocally choosing inflation as a nominal anchor the central banks could face potential dilemmas if, for example, exchange rate appreciated too much under the pressure of massive capital inflows. The paper presents the broad framework in which inflation targeting could operate efficiently and attempts to assess the extent to which such a regime, when applied to transition economies, could fit into this framework.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number wp743.

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Length: pages
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:wdi:papers:2005-743

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Keywords: Inflation Targeting; Eastern Europe;

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  1. Mark R. Stone, 2003. "Inflation Targeting Lite," IMF Working Papers 03/12, International Monetary Fund.
  2. Lars E.O. Svensson & Stefan Gerlach, 2001. "Money and inflation in the Euro Area: A case for monetary indicators?," BIS Working Papers 98, Bank for International Settlements.
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  4. Svensson, Lars E. O., 1998. "Inflation targeting as a monetary policy rule," CFS Working Paper Series 1998/16, Center for Financial Studies (CFS).
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  6. Laurence Ball & Niamh Sheridan, 2004. "Does inflation targeting matter?," DNB Staff Reports (discontinued), Netherlands Central Bank 118, Netherlands Central Bank.
  7. Benjamin M. Friedman, 2004. "Why the Federal Reserve Should Not Adopt Inflation Targeting," International Finance, Wiley Blackwell, Wiley Blackwell, vol. 7(1), pages 129-136, 03.
  8. Lars E. O. Svensson, 2000. "The First Year of the Eurosystem: Inflation Targeting or Not?," American Economic Review, American Economic Association, American Economic Association, vol. 90(2), pages 95-99, May.
  9. Arminio Fraga & Ilan Goldfajn & André Minella, 2003. "Inflation Targeting in Emerging Market Economies," Working Papers Series, Central Bank of Brazil, Research Department 76, Central Bank of Brazil, Research Department.
  10. Lars E O Svensson, 1996. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Bank of England working papers, Bank of England 56, Bank of England.
  11. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
  12. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc.
  13. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Aug, pages 9-110.
  14. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 346, July.
  15. Charles T. Carlstrom & Timothy S. Fuerst, 2002. "Monetary policy rules and stability: inflation targeting versus price-level targeting," Economic Commentary, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, issue Feb.
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  17. William Kerr & Robert G. King, 1996. "Limits on interest rate rules in the IS model," Economic Quarterly, Federal Reserve Bank of Richmond, Federal Reserve Bank of Richmond, issue Spr, pages 47-75.
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Cited by:
  1. Hiew, Lee-Chea & Puah, Chin-Hong & Habibullah, Muzafar Shah, 2013. "The Role of Advertising Expenditure in Measuring Indonesia’s Money Demand Function," MPRA Paper 50223, University Library of Munich, Germany.
  2. Jean-Marc Figuet & Nikolay Nenovsky, 2006. "Convergence and shocks in the road to EU: Empirical investigations for Bulgaria and Romania," William Davidson Institute Working Papers Series, William Davidson Institute at the University of Michigan wp810, William Davidson Institute at the University of Michigan.
  3. Daianu, Daniel & Kallai, Ella, 2008. "Disinflation and Inflation Targeting in Romania," Journal for Economic Forecasting, Institute for Economic Forecasting, Institute for Economic Forecasting, vol. 5(1), pages 59-81, March.
  4. Sánchez, Marcelo, 2010. "Modelling anti-inflationary monetary targeting: with an application to Romania," Working Paper Series, European Central Bank 1186, European Central Bank.

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