Inflation Targeting, Full Employment and Long-run Economic Growth: The Case of Serbia

In the preceding period, like nowadays, inflation targeting as a strategic frame for implementing monetary policy is subject to critics from the economists. Those critics refer primarily to an excessive focusing of the creators of monetary policy to “inflation only” targeting and neglecting considerations about production (i.e. employment). The central banks – inflation targeters demonstrate an increased aversion towards the fluctuations of inflation rate, and a lesser dislike regarding the fluctuations in the flows of production. From the theoretical perspective, even if the “strict” inflation target was adopted, the considerations regarding the movements of the total production in an economy are still important, due to the crucial role of production in determining future inflation. The central bank should possess a variable of production in its reaction function. The inflation target is in the center of monetary policy of the National bank of Serbia. The realization of the regime of inflation targeting in practice started in the last quarter of 2006. After four years of experience with the regime of inflation targeting, the evidence of its total effects (namely, from the aspect of inflation stabilization, and regarding stabilization of production and employment) is less encouraging, and far more providing a reason of discontent