 Choice of Monetary Policy Regime: Should the SBP Adopt Inflation Targeting?Moin Uddin ()
SBP Research Bulletin, 2009, vol. 5, 1-30 Abstract: Monetary aggregate targeting is based on a stable and predictable relationship between inflation and monetary aggregate(s). However, structural changes both in the economy as well as in the financial sector, financial innovation and increasing application of technology have significantly weakened the relationship between inflation and money. The major finding of this paper is that money demand function is unstable in Pakistan, therefore monetary aggregate targeting is not suitable. Consequently, inflation targeting (IT) may be an option for the SBP; it has superior qualities of easy to understand target, flexibility, transparency and being more amenable to accountability. However, some prerequisites such as fiscal prudence, independence of central bank, legislative support, availability of an appropriate measure of inflation and improvement in technical skills of the staff are required before the adoption of IT. It is argued that since the SBP lacks many of these pre-requisites, it may adopt IT Lite as a viable option in the mean time. Keywords: inflation targeting; money demand function; monetary policy regime (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:sbp:journl:34 Access Statistics for this article More articles in SBP Research Bulletin from State Bank of Pakistan, Research Department Contact information at EDIRC. |
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