Inflation targeting in high inflation emerging economies: lessons about rules and instruments

John Taylor

Journal of Applied Economics, 2019, vol. 22, issue 1, 103-116

Abstract: This talk emphasizes the connection between inflation targeting and monetary policy rules. Inflation targeting is not enough. You need to have a policy procedure – a policy rule – to achieve the target. And one cannot design or evaluate a monetary policy rule without a target inflation rate. Hence, there is a symbiotic relationship between inflation targeting and monetary policy rules. Initially, the instrument in the policy rule was a monetary aggregate – a quantity, usually the money supply. It was only later that research on monetary policy rules focused on another instrument of monetary policy – the interest rate, as velocity became more volatile so the interest rate was more reliable as instrument, at least for low levels of inflation. Interest rate rules work best within a band between very high inflation and deflation. Outside that band, the central bank should rely more on money growth rules.

Date: 2019
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DOI: 10.1080/15140326.2019.1565396

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