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Inflation targeting: lessons from four countries

  • Frederic S. Mishkin
  • Adam S. Posen

In recent years, a number of central banks have chosen to orient their monetary policy toward the achievement of numerical inflation targets. This study examines the experience of the first three countries to adopt an inflation-targeting strategy--New Zealand, Canada, and the United Kingdom. It also considers the German experience with a monetary targeting scheme that incorporated many elements of inflation targeting even earlier. The authors find that the countries adopting a numerical inflation target have successfully maintained low inflation rates. Other benefits of inflation targeting include increased central bank accountability, heightened public understanding of monetary policy, and an improved climate for economic growth.

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Article provided by Federal Reserve Bank of New York in its journal Economic Policy Review.

Volume (Year): (1997)
Issue (Month): Aug ()
Pages: 9-110

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Handle: RePEc:fip:fednep:y:1997:i:aug:p:9-110:n:v.3no.3
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  1. Calvo, Guillermo A, 1978. "On the Time Consistency of Optimal Policy in a Monetary Economy," Econometrica, Econometric Society, vol. 46(6), pages 1411-28, November.
  2. Laurence Ball, 1993. "What determines the sacrifice ratio?," Working Papers 93-21, Federal Reserve Bank of Philadelphia.
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  6. Maurice Obstfeld & Kenneth Rogoff, 1995. "The mirage of fixed exchange rates," Working Papers in Applied Economic Theory 95-08, Federal Reserve Bank of San Francisco.
  7. Michael Bruno & William Easterly, 1995. "Inflation Crises and Long-Run Growth," NBER Working Papers 5209, National Bureau of Economic Research, Inc.
  8. C. Hefeker, 1994. "German Monetary Union, the Bundesbank and the EMS collapse," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 47(191), pages 379-398.
  9. Michael Sarel, 1996. "Nonlinear Effects of Inflation on Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 199-215, March.
  10. Gregory D. Hess & Charles S. Morris, 1996. "The long-run costs of moderate inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 71-88.
  11. Easton, Brian, 1994. "Economic and Other Ideas behind the New Zealand Reforms," Oxford Review of Economic Policy, Oxford University Press, vol. 10(3), pages 78-94, Autumn.
  12. David Carey, 1989. "Inflation and the tax system," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 52, march.
  13. Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
  14. Michael Reddell, 1988. "Inflation and the monetary policy strategy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 51, june.
  15. Ammer, John & Freeman, Richard T., 1995. "Inflation targeting in the 1990s: The experiences of New Zealand, Canada, and the United Kingdom," Journal of Economics and Business, Elsevier, vol. 47(2), pages 165-192, May.
  16. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  17. Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-87, November.
  18. Ralph C. Bryant, 1996. "Central Bank Independence, Fiscal Responsibility, and the Goals of Macroeconomic," Discussion Papers 126, Brookings Institution International Economics.
  19. 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.
  20. Lars E.O. Svensson, 1993. "The Simplest Test of Inflation Target Credibility," NBER Working Papers 4604, National Bureau of Economic Research, Inc.
  21. Alex Cukierman, 1992. "Central Bank Strategy, Credibility, and Independence: Theory and Evidence," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262031981.
  22. Alesina, Alberto & Summers, Lawrence H, 1993. "Central Bank Independence and Macroeconomic Performance: Some Comparative Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 25(2), pages 151-62, May.
  23. Michele Lloyd, 1992. "The New Zealand approach to central bank autonomy," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 55, Septemebe.
  24. Hansen, Lars Peter & Hodrick, Robert J, 1980. "Forward Exchange Rates as Optimal Predictors of Future Spot Rates: An Econometric Analysis," Journal of Political Economy, University of Chicago Press, vol. 88(5), pages 829-53, October.
  25. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
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