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A Model for Full-Fledged Inflation Targeting and Application to Ghana

Author

Listed:
  • Kevin Clinton
  • Jihad Dagher
  • Mr. Ondrej Kamenik
  • Mr. Douglas Laxton
  • Ali Alichi
  • Marshall Mills

Abstract

A model in which monetary policy pursues full-fledged inflation targeting adapts well to Ghana. Model features include: endogenous policy credibility; non-linearities in the inflation process; and a policy loss function that aims to minimize the variability of output and the interest rate, as well as deviations of inflation from the long-term low-inflation target. The optimal approach from initial high inflation to the ultimate target is gradual; and transitional inflation-reduction objectives are flexible. Over time, as policy earns credibility, expectations of inflation converge towards the long-run target, the output-inflation variability tradeoff improves, and optimal policy responses to shocks moderate.

Suggested Citation

  • Kevin Clinton & Jihad Dagher & Mr. Ondrej Kamenik & Mr. Douglas Laxton & Ali Alichi & Marshall Mills, 2010. "A Model for Full-Fledged Inflation Targeting and Application to Ghana," IMF Working Papers 2010/025, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/025
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    Cited by:

    1. Ashwin Madhou & Tayushma Sewak & Imad Moosa & Vikash Ramiah & Florian Gerth, 2021. "Towards Full-Fledged Inflation Targeting Monetary Policy Regime in Mauritius," JRFM, MDPI, vol. 14(3), pages 1-18, March.
    2. Michal Andrle & Mr. Andrew Berg & Mr. Enrico G Berkes & Mr. Rafael A Portillo & Mr. Jan Vlcek & Mr. R. Armando Morales, 2013. "Money Targeting in a Modern Forecasting and Policy Analysis System: an Application to Kenya," IMF Working Papers 2013/239, International Monetary Fund.

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