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Inflation Targeting: A Critical Appraisal

Author

Listed:
  • Philip Arestis

    (The Levy Economics Institute)

  • Malcolm Sawyer

    (University of Leeds)

Abstract

Since the early 1990s, a number of countries have adopted Inflation Targeting (IT) in an effort to reduce inflation. Most literature has praised IT as a superior framework of monetary policy. We suggest that IT is a major policy prescription closely associated with the New Consensus Macroeconomics (NCM). Focusing mainly on the IT aspects of the NCM, we address and assess the theoretical foundations of IT, and then assess the empirical work on IT, distinguishing between work that utilizes structural macroeconomic models and work based on single- equation techniques. The IT theoretical framework and the available empirical evidence do not appear to support the views of IT proponents.

Suggested Citation

  • Philip Arestis & Malcolm Sawyer, 2003. "Inflation Targeting: A Critical Appraisal," Macroeconomics 0309015, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0309015
    Note: Type of Document - word; prepared on PC; to print on HP/PostScript; pages: 30; figures: included
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    References listed on IDEAS

    as
    1. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters, in: Monetary Policy Rules, pages 319-348, National Bureau of Economic Research, Inc.
    2. van Els, Peter J. A. & Morgan, Julian & Locarno, Alberto & Villetelle, Jean-Pierre, 2001. "Monetary policy transmission in the euro area: What do aggregate and national structural models tell us?," Working Paper Series 94, European Central Bank.
    3. Bernanke, Ben S & Blinder, Alan S, 1988. "Credit, Money, and Aggregate Demand," American Economic Review, American Economic Association, vol. 78(2), pages 435-439, May.
    4. John B. Taylor, 1999. "Monetary Policy Rules," NBER Books, National Bureau of Economic Research, Inc, number tayl99-1, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Beja, Edsel Jr., 2007. "Win or Lose, it’s the policy we choose: Comparative economic performance of the inflation targeters," MPRA Paper 4833, University Library of Munich, Germany, revised 12 Sep 2007.
    2. Peter J. Boettke & Alexander W. Salter & Daniel J. Smith, 2018. "Money as meta-rule: Buchanan’s constitutional economics as a foundation for monetary stability," Public Choice, Springer, vol. 176(3), pages 529-555, September.
    3. Metin Ozdemir & Selim Tuzunturk, 2009. "Is price stability enough? Macroeconomic performance of inflation targeting in developing countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 1(4), pages 352-372.
    4. Angel Asensio, 2007. "Inflation targeting drawbacks in the absence of a 'natural' anchor," Post-Print halshs-00189225, HAL.
    5. André Roncaglia de Carvalho, 2013. "Inflation, structural change and conflict in post-disinflation Brazil: a structuralist appraisal," Working Papers, Department of Economics 2013_25, University of São Paulo (FEA-USP).
    6. Juan Antonio Montecino & Jose Antonio Cordero, 2010. "Capital Controls and Monetary Policy in Developing Countries," CEPR Reports and Issue Briefs 2010-10, Center for Economic and Policy Research (CEPR).
    7. Oscar Pérez-Laurrabaquio, 2020. "Política monetaria de economías abiertas: el rol del tipo de cambio en México," Revista de Analisis Economico – Economic Analysis Review, Universidad Alberto Hurtado/School of Economics and Business, vol. 35(1), pages 27-53, April.
    8. Bruno Ferreira Frascaroli & Wellington Charles Lacerda Nobrega, 2019. "Inflation Targeting and Inflation Risk in Latin America," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 55(11), pages 2389-2408, September.
    9. P Arestis & A Mihailov, 2009. "Flexible Rules cum Constrained Discretion: A New Consensus in Monetary Policy," Economic Issues Journal Articles, Economic Issues, vol. 14(2), pages 27-54, September.
    10. Andrés Felipe Giraldo Palomino, 2008. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," Revista Cuadernos de Economia, Universidad Nacional de Colombia, FCE, CID, December.
    11. Jose Antonio Cordero, 2008. "Economic growth under alternative monetary regimes: inflation targeting vs real exchange rate targeting," International Review of Applied Economics, Taylor & Francis Journals, vol. 22(2), pages 145-160.
    12. Angel Asensio, 2005. "Monetary and budgetary-fiscal policy interactions in a Keynesian context: revisiting macroeconomic governance," Post-Print halshs-00139029, HAL.
    13. Philip Arestis & Luiz Fernando Paula & Fernando Ferrari-Filho, 2007. "Inflation Targeting in Emerging Countries: The Case of Brazil," Palgrave Macmillan Books, in: Philip Arestis & Alfredo Saad-Filho (ed.), Political Economy of Brazil, chapter 8, pages 116-140, Palgrave Macmillan.
    14. repec:rdg:wpaper:em-dp2007-53 is not listed on IDEAS
    15. Meyer Danie Francois & Chipeta Chama & Camel Richard Thabang Mc, 2018. "An Analysis of the Effectiveness of Interest Rates to Facilitate Price Stability and Economic Growth in South Africa," Studia Universitatis Babeș-Bolyai Oeconomica, Sciendo, vol. 63(3), pages 68-90, December.
    16. Jan Korda, 2010. "Komparace nového konsensu jako teoretického rámce cílování inflace s postkeynesovskou ekonomií [A Comparison of New Consensus as a Theoretical Framework of Inflation Targeting with Post-Keynesian E," Politická ekonomie, Prague University of Economics and Business, vol. 2010(1), pages 92-104.

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    More about this item

    Keywords

    monetary policy; infaltion targeting; interest rates; channels of monetary policy;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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