Inflation Targeting: What is the Meaning of the Bottom of the Band?

December 1, 1999

Disclaimer: This Policy Dicussion Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the meaning of the bottom of target bands in inflation targeting regimes. It is argued that the design of lower limits on target bands, if not done with care, can lead to a lack of transparency, potentially confusing markets about how the authorities will react to a fall in inflation. After first discussing the conceptual issues, the paper then examines the experience with target bands in New Zealand, Israel and Canada and explores how the conceptual issues have played out in practice.

Subject: Banking, Disinflation, Inflation, Inflation targeting, Monetary policy, Price stabilization, Prices

Keywords: A. General regime design, credibility, Disinflation, government, Inflation, inflation rate, inflation target, inflation target band, Inflation targeting, inflation targeting experience, inflation targeting framework, IT framework, IT literature, monetary policy, PDP, Price stabilization, target band

Pages:
24
Volume:
1999
DOI:
https://doi.org/10.5089/9781451970906.003
Issue:
008
Series:
Policy Discussion Paper No. 1999/008
Stock No:
PPIEA0081999
ISBN:
9781451970906
ISSN:
1564-5193

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