IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/2684.html
   My bibliography  Save this paper

From monetary targeting to inflation targeting : lessons from the industrialized countries

Author

Listed:
  • Mishkin, Frederic S.

Abstract

The author examines changes in monetary policy in industrial countries by evaluating, and providing case studies of monetary targeting, and inflation targeting. Inflation targeting has successfully controlled inflation, with some qualifications. It weakens the effects of inflationary shocks, as examples from Canada, Sweden, and the United Kingdom show. It can promote growth, and does not lead to increased fluctuations in output. But inflation targets do not necessarily reduce the cost of reducing inflation. The key to success of inflation targeting, is its stress on transparency, and communication with the public. Inflation targeting increases accountability, which helps ameliorate the time-inconsistency trap (in which the central bank tries to expand output, and employment in the short run, by pursuing overly expansionary monetary policy). Time-inconsistency is more likely to come from political pressures on the central bank, to engage in overly expansionary monetary policy. A key advantage of inflation targeting, is that it helps focus the political debate on what a central bank can do in the long run (control inflation) rather than what it cannot do (raise economic growth, and the number of jobs permanently through expansionary monetary policy). By increasing transparency, and accountability, inflation targeting helps promote central bank independence. Accountability to the general public seems to work as well as direct accountability to the government. Inflation targeting is consistent with democratic principles. In discussing operational design, the author explains, among other things, that: 1) Inflation targeting is far from rigid rule. 2) Inflation targets have always been above zero with no loss of credibility. 3) Inflation targeting does not ignore traditional stabilization goals. 4) Avoiding undershoots of the inflation target, is as important, as avoiding overshoots. 5) When inflation is initially high, inflation targeting may have to be phased-in after disinflation. 6)The edges of the target range, can take on a life of their own. 7) Targeting asset prices, such as the exchange rate, worsens performance.

Suggested Citation

  • Mishkin, Frederic S., 2001. "From monetary targeting to inflation targeting : lessons from the industrialized countries," Policy Research Working Paper Series 2684, The World Bank.
  • Handle: RePEc:wbk:wbrwps:2684
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2001/10/27/000094946_01101304063033/Rendered/PDF/multi0page.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. George A. Akerlof & William R. Dickens & George L. Perry, 1996. "The Macroeconomics of Low Inflation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(1), pages 1-76.
    2. Aaron Drew & Adrian Orr, 1999. "The Reserve Bank's role in the recent business cycle: actions and evolutions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Koivu, Tuuli, 2012. "Monetary policy in transition : Essays on monetary policy transmission mechanism in China," Scientific Monographs, Bank of Finland, number 2012_046, November.
    2. Jovanovic, Branimir & Petreski, Marjan, 2012. "Monetary policy in a small open economy with fixed exchange rate: The case of Macedonia," Economic Systems, Elsevier, vol. 36(4), pages 594-608.
    3. Maciej Ryczkowski, 2016. "Modern central banking from monetary perspective," Ekonomia i Prawo, Uniwersytet Mikolaja Kopernika, vol. 15(4), pages 547-556, December.
    4. Mavee, Nasha & Bonga-Bonga, Lumengo, 2017. "The unbiased forward rate hypothesis before and after the inflation targeting regime in South Africa: A cointegration Analysis," MPRA Paper 77195, University Library of Munich, Germany.
    5. Kitsuyevskaya, Anna, 2016. "Monetary policy: the specifics and peculiarities of realization at the present stage of economic development," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 2, pages 92-111, April.
    6. Ronald Schettkat & Rongrong Sun, 2009. "Monetary policy and European unemployment," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 94-108, Spring.
    7. Kiyutsevskaya Anna, 2017. "Monetary Policy: The Specific Features of Its Implementation in the Current Phase of Economic Development," Working Papers wpaper-2017-298, Gaidar Institute for Economic Policy, revised 2017.
    8. Muscatelli, Vito A. & Natale, Piergiovanna & Tirelli, Patrizio, 2012. "A simple and flexible alternative to Stability and Growth Pact deficit ceilings. Is it at hand?," European Journal of Political Economy, Elsevier, vol. 28(1), pages 14-26.
    9. Valera, Harold Glenn A. & Holmes, Mark J. & Hassan, Gazi M., 2017. "How credible is inflation targeting in Asia? A quantile unit root perspective," Economic Modelling, Elsevier, vol. 60(C), pages 194-210.
    10. Rageh, Rania, 2010. "Interest rate rule for the conduct of monetary policy: analysis for Egypt (1997:2007)," MPRA Paper 26639, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:2684. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Roula I. Yazigi). General contact details of provider: http://edirc.repec.org/data/dvewbus.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.