Credibility with Flexibility: The Evolution of Inflation-Targeting Regimes, 1990–2006

Graydon Paulin
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Graydon Paulin: Bank of Canada, http://www.bankofcanada.ca/

Bank of Canada Review, 2006, vol. 2006, issue Summer, pages 5-18

Abstract: Beginning with a review of the adoption of inflation targeting in a broad group of countries, Paulin focuses on changes in the design of inflation-targeting frameworks in light of fifteen years of accumulated experience. Included in the discussion are the use of numerical targets and ranges, the policy horizon, supporting institutional policy structures, and communication, including the publication of forecasts. A recurring theme is how much flexibility an inflation-targeting regime allows. The article concludes that the changes made to the frameworks have been relatively modest since their adoption, but in concert with the improved credibility that has resulted from central banks meeting their inflation-control targets, they have allowed an increasingly nuanced response to economic shocks.

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