Choice of Monetary Policy Regime: Should SBP Adopt Inflation Targeting

Moin Uddin (moinuddin@sbp.org.pk)
Additional contact information
Moin Uddin: State Bank of Pakistan

No 19, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: Monetary aggregate targeting is principally 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 central bank since IT is becoming popular in both developed and emerging economies due to its superior qualities of easy to understand target, flexibility, transparency and being more amenable to accountability. However, some pre-requisites 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. In the meantime, IT Lite is a viable option for the State Bank of Pakistan (SBP). Length: 28 pages

Keywords: Inflation targeting; money demand function; monetary policy regime (search for similar items in EconPapers)
JEL-codes: E3 E31 E32 E52 (search for similar items in EconPapers)
Date: 2007-07
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.sbp.org.pk/repec/sbp/wpaper/wp19.pdf First version, 2007 (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://www.sbp.org.pk/repec/sbp/wpaper/wp19.pdf [301 Moved Permanently]--> https://www.sbp.org.pk/repec/sbp/wpaper/wp19.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:sbp:wpaper:19

Access Statistics for this paper

More papers in SBP Working Paper Series from State Bank of Pakistan, Research Department Contact information at EDIRC.
Bibliographic data for series maintained by Faisal Saleem (faisal.saleem@sbp.org.pk).