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Inflation Targeting: A Critical Appraisal

Author

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  • Philip Arestis

    (The Levy Economics Institute)

  • Malcolm Sawyer

    (University of Leeds)

Abstract

Since the early 1990s, a number of countries have adopted Inflation Targeting (IT) in an effort to reduce inflation. Most literature has praised IT as a superior framework of monetary policy. We suggest that IT is a major policy prescription closely associated with the New Consensus Macroeconomics (NCM). Focusing mainly on the IT aspects of the NCM, we address and assess the theoretical foundations of IT, and then assess the empirical work on IT, distinguishing between work that utilizes structural macroeconomic models and work based on single- equation techniques. The IT theoretical framework and the available empirical evidence do not appear to support the views of IT proponents.

Suggested Citation

  • Philip Arestis & Malcolm Sawyer, 2003. "Inflation Targeting: A Critical Appraisal," Macroeconomics 0309015, EconWPA.
  • Handle: RePEc:wpa:wuwpma:0309015
    Note: Type of Document - word; prepared on PC; to print on HP/PostScript; pages: 30; figures: included
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    References listed on IDEAS

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    1. Peter van Els & Alberto Locarno & Julian Morgan & Jean-Pierre Villetelle, 2001. "Monetary policy transmission in the euro area: what do aggregate and national structural models tell us?," Temi di discussione (Economic working papers) 433, Bank of Italy, Economic Research and International Relations Area.
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    Citations

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    Cited by:

    1. Beja, Edsel Jr., 2007. "Win or Lose, it’s the policy we choose: Comparative economic performance of the inflation targeters," MPRA Paper 4833, University Library of Munich, Germany, revised 12 Sep 2007.
    2. Andrés Felipe Giraldo Palomino, 2008. "Aversión a la inflación y regla de Taylor en Colombia 1994-2005," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID, December.
    3. Angel Asensio, 2005. "Monetary and budgetary-fiscal policy interactions in a Keynesian context: revisiting macroeconomic governance," Post-Print halshs-00139029, HAL.
    4. Philip Arestis & Alexander Mihailov, 2007. "Flexible Rules cum Constrained Discretion: A New Consensus in Monetary Policy," Economic Analysis Research Group Working Papers earg-wp2007-13, Henley Business School, Reading University.
    5. repec:rdg:wpaper:em-dp2007-53 is not listed on IDEAS
    6. Metin Ozdemir & Selim Tuzunturk, 2009. "Is price stability enough? Macroeconomic performance of inflation targeting in developing countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 1(4), pages 352-372.
    7. Angel Asensio, 2007. "Inflation targeting drawbacks in the absence of a 'natural' anchor," Post-Print halshs-00189225, HAL.
    8. Philip Arestis & Luiz Fernando de Paula & Fernando Ferrari-Filho, 2006. "Inflation Targeting In Emerging Countries: The Case Of Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 42, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
    9. Juan Antonio Montecino & Jose Antonio Cordero, 2010. "Capital Controls and Monetary Policy in Developing Countries," CEPR Reports and Issue Briefs 2010-10, Center for Economic and Policy Research (CEPR).
    10. Jan Korda, 2010. "Komparace nového konsensu jako teoretického rámce cílování inflace s postkeynesovskou ekonomií
      [A Comparison of New Consensus as a Theoretical Framework of Inflation Targeting with Post-Keynesian E
      ," Politická ekonomie, University of Economics, Prague, vol. 2010(1), pages 92-104.

    More about this item

    Keywords

    monetary policy; infaltion targeting; interest rates; channels of monetary policy;

    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

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