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Monetary Regimes with Two Nominal Anchors: Are they Possible?

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  • Nikola Fabris

    (Central Bank of Montenegro, Podgorica, Montenegro; Faculty of Economics and Business, Belgrade University, Belgrade, Serbia)

Abstract

The traditional approach to monetary policy, which relied on one instrument to achieve a single goal, has proven ineffective during recent periods of global instability. In response to the challenges that this traditional framework could not address, non-standard monetary policy instruments have emerged. While they have somewhat alleviated problems, they cannot be considered a solution, as their long-term application could lead to the emergence of several other imbalances. Therefore, this paper explores a new framework for monetary policy based on two nominal anchors. The analysis focuses on two monetary regimes. The first is based on a modification of the inflation targeting regime, which would additionally include a nominal anchor in the form of an exchange rate. This is not a completely new regime, as some countries have already used an implicit exchange rate target alongside an inflation target. The second regime under consideration is entirely new and would be based on a monetary target and an interest rate target.

Suggested Citation

  • Nikola Fabris, 2025. "Monetary Regimes with Two Nominal Anchors: Are they Possible?," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 14(1), pages 5-19.
    • Handle: RePEc:cbk:journl:v:14:y:2025:i:1:p:5-19
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    Keywords

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    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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