Towards a New Monetary-Macroprudential Policy Framework: Perspectives on Integrated Inflation Targeting

Pierre-Richard Agénor and Luiz Awazu Pereira da Silva ()

Chapter 30 in Macro-financial Stability Policy in a Globalised World: Lessons from International Experience:Selected Papers from the Asian Monetary Policy Forum 2021 Special Edition and MAS-BIS Conference, 2023, pp 618-673 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Bank-dependent, middle-income countries (MICs) continue to be confronted with significant challenges to achieve price and financial stability. This chapter discusses how Integrated Inflation Targeting (IIT) can help to address them. Section 2 provides a brief overview of the performance of inflation targeting regimes in MICs since the Global Financial Crisis. Section 3 defines the characteristics of IIT, with a focus on interactions between monetary policy and macroprudential regulation, possibly supplemented by other policies (namely, foreign exchange intervention and temporary capital controls) that central banks and regulators may need to rely on to promote economic stability. The “mechanics” of IIT and the operational challenges that it faces (including the need for international coordination of macroprudential policies) are then discussed in Sections 4 and 5. Section 6 argues that IIT itself should be part of a broader Integrated Macro-Financial Policy Framework (IMFPF), which blends together IIT with a fiscal policy framework that involves the combination of fiscal rules and a stabilisation fund — even in MICs that are not highly exposed to commodity price shocks — to provide the fiscal space needed for fiscal policy to regain its countercyclical role.

Keywords: Macro-financial Policy; Policy Framework; Macroprudential Policy; Monetary Policy; Fiscal Policy; Capital Flow Management Measure; Capital Control; Foreign Exchange Intervention; Integrated Policies; Multiple Policies; Policy Trade-off; Policy Substitute; Policy Complement; Policy Interaction; Policy Space; Central Bank; International Spillovers; Spillbacks; Sending Country; Receiving Country; Financial Channel; Financial Regulation; Financial Stability; External Stability; Advanced Economy; Emerging Market Economy; Capital Flow; Portfolio Flow; Banking Flow; Exchange Rate; Banking System; Non-bank Financial Institution; United Kingdom; Sweden; China; Hong Kong Sar; India; Indonesia; Korea; Singapore; Latin America; Croatia (search for similar items in EconPapers)
JEL-codes: E E52 E58 E6 F F01 F3 F38 (search for similar items in EconPapers)
Date: 2023
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