Why Inflation Targeting?

Charles Freedman and Douglas Laxton

No 2009/086, IMF Working Papers from International Monetary Fund

Abstract: This is the second chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." We begin by discussing the costs of inflation, including their role in generating boom-bust cycles. Following a general discussion of the need for a nominal anchor, we describe a specific type of monetary anchor, the inflation-targeting regime, and its two key intellectual roots-the absence of long-run trade-offs and the time-inconsistency problem. We conclude by providing a brief introduction to the way in which inflation targeting works.

Keywords: WP; inflation expectation; demand shock; output-inflation process; inflation equation; Inflation Targeting; Monetary Policy; feedback rule; targeted rate of inflation; core rate; inflation-targeting regime; inflation targeting adoption; Inflation; Conventional peg; Output gap; Supply shocks; Africa; Global (search for similar items in EconPapers)
Pages: 25
Date: 2009-04-01
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Citations: View citations in EconPapers (49)

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