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Mark R. Stone

announces the target in two cases. Further, in most IFFIT countries the government has scope to publicly override central bank decisions. Table 3. IFFIT Countries, Accountability Aspects of Monetary Framework Country Policy Decision Making Target set Relation of Decision Making Body with Government Government Override Provision Conflict made public Australia Reserve Bank Board Jointly through an agreement between Treasurer and Governor - designate Required to inform government from time to time on monetary and banking policies

Ms. Anita Tuladhar
This paper surveys decision-making roles of governing bodies of central banks that have formally adopted inflation targeting as a monetary framework. Governance practices seek to balance institutional independence needed for monetary policy credibility with accountability required to protect democratic values. Central bank laws usually have price stability as the primary monetary policy objective but seldom require an explicit numerical inflation target. Governments are frequently involved in setting targets, but to ensure operational autonomy, legal provisions explicitly limit government influence in internal policy decision-making processes. Internal governance practices differ considerably with regard to the roles and inter-relationships between the policy, supervisory, and management boards of a central bank.
Mr. Scott Roger and Mr. Mark R. Stone

Industrial Countries Versus Emerging Market Economies V. Selected Episodes of Large Misses of Inflation Targets VI. Stylized Facts of the Experience with Inflation Targeting VII. Policy Implications VIII. Final Thoughts References Tables 1. Inflation Target Parameters 2. Monetary Policy Decision Making 3. Formal Procedures for Target Range Misses and Government Overrides 4. Monetary Policy Transparency Assessments Across Monetary Regimes 5. Transparency of Inflation Reports 6. Inflation Outcomes Relative to Target or Center of Target Ranges 7

Ms. Anita Tuladhar

that should a conflict arise between government and the central bank, it is resolved without losing public confidence. Such provisions appear to be more common among the surveyed developed economies. Table (7) lists such provisions and the accompanying features. Table 7. Conflict Resolution, end–2003 Country Government override provision Conflict made public Appeal process Time limit Other CB Board Legislature Australia Yes, after board presents a statement expressing a difference of opinion and government

Mr. Mark R. Stone
The experience of full-fledged inflation targeting (FFIT) countries is used here to shed light on the costs and benefits of greater monetary policy transparency for the G3. For the United States and the euro area, a hypothetical adoption of FFIT would incur a cost of less discretion while gaining the benefit of locking in a highly credible framework. The adoption of FFIT by Japan would create the risk of a further hit to credibility if policy was not able to end deflation. In practice, the G3 are already moving toward a new monetary regime that resembles FFIT in transparency, but not in accountability.
International Monetary Fund

the 5 year term of the Governor. Underlying CPI excludes significant changes in indirect taxes and subsidies, mortgage interest rates, terms of trade, and natural disasters. Monthly publication of monetary policy statement, quarterly release of inflation projections, and frequent statements by Reserve Bank officials. The 1989 Reserve Bank Act defined price stability as the sole objective of monetary policy. Policy Target Agreements are negotiated between the Reserve Bank and the Government, subject to a public Government override Canada February 1991

International Monetary Fund

Country Target Set Relation of Decision Making Body with Government Government Override Provision Conflict Made Public Accountability for Ttarget Breach United States None The FRB is not subject to formal oversight but the Chairman is subject to public questioning by members of Congress during his semi-annual appearance. None No N/A Australia Jointly through an agreement between Treasurer and Governor -designate Required to inform government from time to time on monetary and banking policies which is done through monthly meetings

International Monetary Fund

appropriate. Making this distinction implies a relatively high degree of indepence for the Reserve Bank. The Reserve Bank Act gives the Bank independence to establish specific goals for monetary policy (consistent with the broad objectives of the Reserve Bank Act), as well as the independence to change the instrument, albeit with a government override. This is unlike the situation in New Zealand, where the goal is set by legislation but the central bank has instrument independence (also with a government override) and the United Kingdom, where the Bank of England has


monetary policy. Policy Target Agreements are negotiated between the Reserve Bank and the government, subject to a highly public government override. Canada February 1991 12-month CPI inflation rate of 1-3 percent. In practice, the Bank of Canada excludes food, energy prices, and indirect tax increases from the CPI. Regular progress monitoring, particularly in the Bank of Canada’s Annual Report, but official inflation forecasts are not made public. Joint announcement of the inflation target by the Minister of Finance and the Governor of the Bank of Canada

Ms. Elif C Arbatli Saxegaard, Mr. Dennis P Botman, Kevin Clinton, Pietro Cova, Vitor Gaspar, Zoltan Jakab, Mr. Douglas Laxton, Mr. Constant A Lonkeng Ngouana, Mr. Joannes Mongardini, and Hou Wang

the case that politicians start using the monetary financing of the deficit as an excuse to delay fiscal consolidation (e.g., VAT increases). In other words, market participants might expect another fiscal stimulus in the future, again financed by monetary expansion. This gives rise to the specter of “fiscal dominance,” where the financing needs of the government override the inflation control objective of the central bank. An inflation scare would be more protracted if this type of policy lacks a proper long-term macroeconomic framework. It would result in higher