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Challenges for Inflation Targeting

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  • Delano S. Villanueva

Abstract

This paper raises a very important question for inflation targeting (IT) central banks. Given the multiple objectives, should financial stability be an implicit objective of IT? It is argued that on a theoretical basis, there is no justification to include financial stability in the policy rule of the IT framework. In fact, the objectives of IT should just be inflation control and full employment. However, financial stability must naturally remain an important objective of central banks. Apart from a well-established and coordinated system of regulation and supervision of financial institutions, rigorous prudential policy should be the first line of defence to safeguard financial stability.

Suggested Citation

  • Delano S. Villanueva, 2015. "Challenges for Inflation Targeting," Working Papers wp10, South East Asian Central Banks (SEACEN) Research and Training Centre.
    • Handle: RePEc:sea:wpaper:wp10
    as

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    File URL: https://www.seacen.org/publications/RePEc/702003-100377-PDF.pdf
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    References listed on IDEAS

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    Keywords

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    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

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