Inflation Targeting: Theory and Policy Implications

J. Green

No 1996/065, IMF Working Papers from International Monetary Fund

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 since the target is overshot on average. The problem can be addressed by assigning price stability as the single policy objective or by assigning a joint target for both inflation and output, provided that they are consistent. Many inflation targeting countries take the joint target approach implicitly through transparency measures which publicly assess monetary conditions in terms of potential output and output gaps.

Keywords: WP; central bank; monetary policy; inflation bias; inflation-output tradeoff; inflation expectation; inflation targeting policy framework; government-central bank relationship; policy rule; government-central bank arrangement; inflation bias need; inflation targeting framework; inflation target approach; commitment policy regime; inflation target policy; Inflation targeting; Inflation; Price stabilization; Monetary policy frameworks; Potential output; Europe (search for similar items in EconPapers)
Pages: 22
Date: 1996-06-01
References: Add references at CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=2053 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:1996/065

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().