Inflation Targeting: Theory and Policy Implications

John H. Green
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John H. Green: International Monetary Fund

IMF Staff Papers, 1996, vol. 43, issue 4, 779-795

Abstract: As with many monetary policy frameworks, inflation targeting is subject to the well-known problem of inflation bias. With inflation targeting, however, the bias becomes apparent not as inflation above desired levels but as a wedge between the announced target and observed inflation. This inconsistency could render the framework neither credible nor enforceable because the target is overshot on average. The problem can be addressed by assigning price stability as the single policy objective or by assigning dual targets for inflation and output, provided that they are consistent. Many inflation-targeting countries take the joint target approach implicitly through transparency measures that publicly assess monetary conditions in terms of potential output and output gaps.

JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 1996
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Citations: View citations in EconPapers (19)

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