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Why Inflation Targeting?

Author

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  • Charles Freedman
  • Douglas Laxton

Abstract

This is the second chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." We begin by discussing the costs of inflation, including their role in generating boom-bust cycles. Following a general discussion of the need for a nominal anchor, we describe a specific type of monetary anchor, the inflation-targeting regime, and its two key intellectual roots-the absence of long-run trade-offs and the time-inconsistency problem. We conclude by providing a brief introduction to the way in which inflation targeting works.

Suggested Citation

  • Charles Freedman & Douglas Laxton, 2009. "Why Inflation Targeting?," IMF Working Papers 09/86, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:09/86
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ftiti, Zied & Hichri, Walid, 2014. "The price stability under inflation targeting regime: An analysis with a new intermediate approach," Economic Modelling, Elsevier, vol. 38(C), pages 23-32.
    2. Akhis R Hutabarat, 2006. "Comment on: “Monetary policy approaches and implementation in Asia: the Philippines and Indonesia” by Roberto S Mariano and Delano P Villanueva," BIS Papers chapters,in: Bank for International Settlements (ed.), Monetary policy in Asia: approaches and implementation, volume 31, pages 227-231 Bank for International Settlements.
    3. de Carvalho Filho, Irineu, 2010. "Inflation Targeting and the Crisis: An Empirical Assessment," MPRA Paper 19960, University Library of Munich, Germany.
    4. de Carvalho Filho Irineu E, 2011. "28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession," The B.E. Journal of Macroeconomics, De Gruyter, vol. 11(1), pages 1-46, July.
    5. Bennett T. McCallum & Edward Nelson, 2004. "Timeless perspective vs. discretionary monetary policy in forward-looking models," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 43-56.
    6. Stephanie Medina Cas & Alejandro Carrion-Menendez & Florencia Frantischek, 2011. "Improving the Monetary Policy Frameworks in Central America," IMF Working Papers 11/245, International Monetary Fund.
    7. Lucotte, Yannick, 2010. "The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?," MPRA Paper 27118, University Library of Munich, Germany.
    8. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302 Elsevier.
    9. Inci Ötker & Charles Freedman, 2009. "Country Experiences with the Introduction and Implementation of Inflation Targeting," IMF Working Papers 09/161, International Monetary Fund.
    10. International Monetary Fund, 2009. "Inflation Targeting Under Imperfect Policy Credibility," IMF Working Papers 09/94, International Monetary Fund.
    11. Arto Kovanen, 2011. "Does Money Matter for Inflation in Ghana?," IMF Working Papers 11/274, International Monetary Fund.
    12. Peter Bofinger, 2011. "The Scope For Foreign Exchange Market Interventions," UNCTAD Discussion Papers 204, United Nations Conference on Trade and Development.
    13. Eva Zamrazilová, 2011. "Měnová politika: staré lekce, nové výzvy
      [Monetary Policy: Old Lessons and New Challenges]
      ," Politická ekonomie, University of Economics, Prague, vol. 2011(1), pages 3-21.
    14. Rathin Roy & Raquel Almeida Ramos, 2012. "IMF Article IV Reports: An Analysis of Policy Recommendations," Working Papers 86, International Policy Centre for Inclusive Growth.
    15. repec:wsi:jicepx:v:01:y:2010:i:01:n:s1793993310000081 is not listed on IDEAS
    16. Hanna Samaryna & Jakob de Haan, 2011. "Right on Target: Exploring the Determinants of Inflation Targeting Adoption," DNB Working Papers 321, Netherlands Central Bank, Research Department.
    17. Katerina Smídková & Viktor Kotlán & David Navrátil & Ales Bulir, 2008. "Inflation Targeting and Communication; It Pays Off to Read Inflation Reports," IMF Working Papers 08/234, International Monetary Fund.
    18. Douglas Laxton & Charles Freedman, 2009. "It Framework Design Parameters," IMF Working Papers 09/87, International Monetary Fund.
    19. Carlos A. Carrasco & Jesús Ferreiro, 2011. "Inflation Targeting and Economic Performance: The Case of Mexico," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(5), pages 675-692, December.
    20. Bennett McCallum, 2002. "Inflation Targeting and the Liquidity Trap," Central Banking, Analysis, and Economic Policies Book Series,in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 9, pages 395-438 Central Bank of Chile.
    21. Castillo, Carlos, 2014. "Inflation targeting and exchange rate volatility smoothing: A two-target, two-instrument approach," Economic Modelling, Elsevier, vol. 43(C), pages 330-345.
    22. Bennett T. McCallum, 2001. "Monetary policy analysis in models without money," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 145-164.
    23. Anna Samarina & Jakob De Haan, 2014. "Right On Target: Exploring The Factors Leading To Inflation Targeting Adoption," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 372-389, April.
    24. repec:ukb:journl:y:2015:i:233:p:39-53 is not listed on IDEAS

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    Keywords

    Economic models; Inflation; Monetary policy; Inflation targeting; rate of inflation; central bank;

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