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Why Inflation Targeting?

Author

Listed:
  • Charles Freedman
  • Mr. 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 & Mr. Douglas Laxton, 2009. "Why Inflation Targeting?," IMF Working Papers 2009/086, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2009/086
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    References listed on IDEAS

    as
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