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Inflation Targeting. Institutional features of the strategy in practice

Author

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  • Joanna Niedźwiedzińska

    (Narodowy Bank Polski)

Abstract

New Zealand was the first country to introduce a monetary strategy known as inflation targeting (IT) in 1989. Since then, many other countries have adopted an inflation targeting regime. The paper discusses in detail the key institutional features of an IT strategy, as practiced by central banks. It includes an overview of mandates, inflation targets, decisionmaking processes and accountability mechanisms of inflation targeters. Instead of only describing the current state of IT, in many instances the paper indicates changes introduced in the past years to central banks’ practices. The historical perspective relates to such aspects as reformulations of inflation targets and the evolution of decision-making processes. The paper analyses more than 40 IT central banks and indicates similarities and differences among advanced and emerging market economies. The main finding is that the reviewed institutional features have not been homogenous – neither across time, nor across central banks. In particular, when comparing advanced and emerging market inflation targeters, while in many aspects there is hardly any difference to be noted, in some cases the approach of advanced economies differs significantly from that of emerging market economies. This holds especially for the key feature of the strategy – namely defining the inflation target.

Suggested Citation

  • Joanna Niedźwiedzińska, 2018. "Inflation Targeting. Institutional features of the strategy in practice," NBP Working Papers 299, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:299
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    File URL: http://www.nbp.pl/publikacje/materialy_i_studia/299_en.pdf
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    References listed on IDEAS

    as
    1. Alberto Naudon & Andrés Pérez, 2017. "An Overview of Inflation-Targeting Frameworks: Institutional Arrangements, Decision-making, & the Communication of Monetary Policy," Working Papers Central Bank of Chile 811, Central Bank of Chile.
    2. Mark Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting; Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
    3. Michael Woodford, 2007. "The Case for Forecast Targeting as a Monetary Policy Strategy," Journal of Economic Perspectives, American Economic Association, vol. 21(4), pages 3-24, Fall.
    4. Tobin, James, 1972. "Inflation and Unemployment," American Economic Review, American Economic Association, vol. 62(1), pages 1-18, March.
    5. Carare, Alina & Stone, Mark R., 2006. "Inflation targeting regimes," European Economic Review, Elsevier, vol. 50(5), pages 1297-1315, July.
    6. Carl E. Walsh, 2009. "Inflation Targeting: What Have We Learned?," International Finance, Wiley Blackwell, vol. 12(2), pages 195-233, August.
    7. Madhusudan Mohanty, 2013. "Market volatility and foreign exchange intervention in EMEs: what has changed?," BIS Papers chapters,in: Bank for International Settlements (ed.), Sovereign risk: a world without risk-free assets?, volume 73, pages 01-10 Bank for International Settlements.
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    More about this item

    Keywords

    Monetary Policy; Central Banking; Policy Design;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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