Inflation Targeting: It'S Not Broke, It Doesn'T Need Fixing, But Can It Survive?
Until the end of 2005 there were few outward signs that the inflation targeting (IT) monetary policy strategy was deemed fragile or that the likelihood of abandoning it was high. In light of the severe economic downturn and the global financial crisis that has afflicted most economies around the world since at least 2008, it is worth reconsidering the question of the fragility of the inflation targeting regime. This paper reprises the approach followed in Siklos (2008) but adds important new twists. For example, the present study asks whether the continued survival of IT is due to the fact that some of the central banks in question did take account of changes in financial stress. The answer is no. Indeed, many central banks are seen as enablers of rapid asset price increases. The lesson, however, is not that inflation targeting needs to be repaired. Instead, refinements should be considered to the existing inflation targeting strategy which has evolved considerably since it was first introduced in New Zealand 20 years ago. Most notably, there should be continued emphasis on inflation as the primary nominal anchor of monetary policy, especially in emerging market economies (EME), even if additional duties are assigned to central banks in response to recent events.
Volume (Year): 01 (2010)
Issue (Month): 01 ()
|Contact details of provider:|| Web page: http://www.worldscinet.com/jicep/jicep.shtml|
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Siklos,Pierre L., 2006.
"The Changing Face of Central Banking,"
Cambridge University Press, number 9780521034494, October.
- Charles Freedman & Douglas Laxton, 2009. "Why Inflation Targeting?," IMF Working Papers 09/86, International Monetary Fund.
- N. Nergiz Dincer & Barry Eichengreen, 2007. "Central Bank Transparency: Where, Why, and with What Effects?," NBER Working Papers 13003, National Bureau of Economic Research, Inc.
- Robert H. Rasche & Marcela M. Williams, 2007.
"The effectiveness of monetary policy,"
Federal Reserve Bank of St. Louis, issue Sep, pages 447-490.
- 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.
- Frederic S. Mishkin, 2009.
"Monetary Policy Strategy,"
MIT Press Books,
The MIT Press,
edition 1, volume 1, number 0262513374, June.
- Philip Lowe & Claudio Borio, 2002. "Asset prices, financial and monetary stability: exploring the nexus," BIS Working Papers 114, Bank for International Settlements.
- Benjamin M. Friedman, 2004. "Why the Federal Reserve Should Not Adopt Inflation Targeting," International Finance, Wiley Blackwell, vol. 7(1), pages 129-136, 03.
- Blackburn, Keith & Christensen, Michael, 1989. "Monetary Policy and Policy Credibility: Theories and Evidence," Journal of Economic Literature, American Economic Association, vol. 27(1), pages 1-45, March.
- Robert Amano & Paul Fenton & David Tessier & Simon van Norden, 1996. "The credibility of monetary policy: a survey of the literature with some simple applications to Caanda," Meeting papers 9610001, EconWPA.
- Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
- Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-29, October.
- Pierre L. Siklos, 2008. "Inflation Targeting Around the World," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(6), pages 17-37, November.
- Flood, Robert P. & Rose, Andrew K., 2010.
"Inflation targeting and business cycle synchronization,"
Journal of International Money and Finance,
Elsevier, vol. 29(4), pages 704-727, June.
- Flood, Robert P & Rose, Andrew K, 2009. "Inflation Targeting and Business Cycle Synchronization," CEPR Discussion Papers 7377, C.E.P.R. Discussion Papers.
When requesting a correction, please mention this item's handle: RePEc:wsi:jicepx:v:01:y:2010:i:01:p:59-80. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)
If references are entirely missing, you can add them using this form.