The Evolution of Inflation Targeting from the 1990s to 2020s: Developments and New Challenges

Michael Kiley and Frederic S. Mishkin

No 2025-025, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: Since the initial launch of inflation targeting in the early 1990s in New Zealand and a few other countries, inflation targeting has become the predominant monetary policy strategy in large advanced and emerging market economies. Inflation targeting has been remarkably successful in anchoring inflation, likely owing to core elements of the framework across central banks. Its reaction process, which adjusts the monetary policy stance to ensure the return of inflation to target, allows it to flexibly incorporate a wide range of factors while limiting the discretionary biases that can contribute to excessive inflation. The emphasis on communications about the inflation outlook promotes transparency and accountability. As a result, inflation targeting central banks have, on balance, managed well the large shocks associated with the Global Financial Crisis and COVID. Even so, there are numerous challenges discussed in this paper that are associated with calibration and communications of forward guidance, quantitative easing/tightening, and financial stability.

Keywords: Inflation targeting; Monetary policy; Central banking; Financial stability (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 53 p.
Date: 2025-03-31
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-25

DOI: 10.17016/FEDS.2025.025

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