Inflation Targeting as a Coordination Device
Andrew Hughes Hallett () and
Nicola Viegi ()
Open Economies Review, 2002, vol. 13, issue 4, 341-362
The paper analyses inflation targeting when two independent policy authorities (a central bank and a National Government) have divergent preferences for the optimal policy mix. We demonstrate that the main advantage of inflation targeting, as a policy regime, is that it represents a simple proxy for full coordination between policy authorities. Inflation targeting therefore helps because it reduces the conflicts between fiscal and monetary policy, expecially where there are strong “spillovers” between the two policies. These results are then tested, and largely validated, in a simulation framework using a small open economy calibrated model. Copyright Kluwer Academic Publishers 2002
Keywords: inflation targeting; policy coordination (search for similar items in EconPapers)
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