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International Monetary Fund. External Relations Dept.

Many economists strongly advocate inflation targeting as a framework for conducting monetary policy. Under this approach, first adopted by New Zealand in 1989, countries make an explicit commitment to meet a specified inflation rate target or target range within a certain time frame. Proponents of inflation targeting cite its many potential benefits—it can lower average inflation, stabilize output, and lock in expectations of low inflation, which can reduce the inflationary impact of macroeconomic shocks. But is there hard evidence yet that inflation targeting really has helped improve inflation, output, and interest rate performance? A study by Laurence Ball (Professor of Economics, Johns Hopkins University) and Niamh Sheridan (Economist, IMF Institute) argues that the early evidence is inconclusive. They suggest greater experience may be needed before a definitive answer can be reached.

International Monetary Fund. External Relations Dept.

IMF Managing Director Horst Köhler traveled to Ethiopia on July 5 to discuss the challenges facing the drought-stricken country and to emphasize the IMF’s strong commitment to support the country’s long-term vision for economic growth and poverty reduction. In subsequent stops on the week-long trip, Köhler visited Kenya, Madagascar, and Mozambique, where he attended the African Union Heads of State meeting in Maputo.

International Monetary Fund. External Relations Dept.

On May 29, the government of Uruguay successfully exchanged most of its market debt (about half of its total debt) for new bonds with longer maturities and roughly unchanged interest rates. The exchange, which provides crucial debt-service relief to a country that has battled external shocks, a severe financial crisis, and a deep recession, constitutes a key component of Uruguay’s efforts to restore economic vitality. Gilbert Terrier (Western Hemisphere Department), Rupert Thorne, and Peter Breuer (both International Capital Markets Department) examine the exchange’s design, why bondholders responded so favorably, and whether this successful effort might hold lessons for other countries contemplating a similar operation.