Why Inflation Targeting?

April 1, 2009

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Format: Chicago

Charles Freedman, and Douglas Laxton. Why Inflation Targeting?, (USA: International Monetary Fund, 2009) accessed December 3, 2024

Disclaimer: This Working 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 is the second chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." We begin by discussing the costs of inflation, including their role in generating boom-bust cycles. Following a general discussion of the need for a nominal anchor, we describe a specific type of monetary anchor, the inflation-targeting regime, and its two key intellectual roots-the absence of long-run trade-offs and the time-inconsistency problem. We conclude by providing a brief introduction to the way in which inflation targeting works.

Subject: Conventional peg, Economic theory, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Output gap, Prices, Production, Supply shocks

Keywords: Africa, Conventional peg, Core rate, Demand shock, Feedback rule, Global, Inflation, Inflation equation, Inflation expectation, Inflation Targeting, Inflation targeting adoption, Inflation-targeting regime, Monetary Policy, Output gap, Output-inflation process, Supply shocks, Targeted rate of inflation, WP

Publication Details

Pages:

25
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2009/086
Stock No:

WPIEA2009086
ISBN:

9781451872330
ISSN:

1018-5941

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