- Mark Zelmer, and Andrea Schaechter
- Published Date:
- December 2000
© 2000 International Monetary Fund
Production: IMF Graphics Section
Figures: Theodore F. Peters, Jr.
Typesetting: Alicia Etchebarne-Bourdin
Adopting inflation targeting: practical issues for emerging market countries/Andrea Schaechter, Mark R. Stone, and Mark Zelmer.
p. cm.—(Occasional paper; no. 202)
Includes bibliographical references.
1. Anti-inflationary policies. 2. Monetary policy. 3. Post-communism—Economic aspects. I. Stone, Mark R. (Mark Richard). II. Zelmer, Mark. III. Title. IV. Occasional paper (International Monetary Fund); no. 202.
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- I Executive Summary
- II Introduction
- III Institutional Framework
- IV Transition Issues
- V Operational Issues
- VI Organizational Implications for Central Banks
- VII Conclusion
- I Economic Structure of Emerging Market Inflation Targeters
- II Institutional Aspects of Inflation Targeting
- III Country Studies
- 1.1. Synopsis of Inflation Targeting Frameworks
- 3.1. Central Bank Legal Frameworks
- 3.2. Announcement of Inflation Targets
- 3.3. Target Horizon
- 3.4. Price Indices
- 3.5. Point Target or Target Range
- 3.6. Evolution of Inflation Targets
- 3.7. Communication Vehicles Employed by Inflation Targeters
- 4.1. Timing of Transitions to Full-Fledged Inflation Targeting by Emerging Market Countries
- 4.2. Inflation During Transition to Full-Fledged Inflation Targeting
- 4.3. Inflation Prior to Beginning of Transition to Inflation Targeting
- 4.4. Exchange Rate Regime Prior to Adoption of Inflation Targeting
- 4.5. Motivations for Adopting Inflation Targeting
- 5.1. Important Features of Monetary Policy Transmission Channels
- 5.2. Operating Targets and Main Instruments of Monetary Policy
- 5.3. Quarterly Breaches of Inflation Targets
- 5.4. The Policy Response of Inflation Targeters to the Asian/Russian Crises
- 6.1. Monetary Policy Decision-Making Body
- 6.2. Role of Non-Central Bank Members
- 6.3. Votes versus Consensus Decisions
- 6.4. Frequency of Monetary Policy Meetings
- 6.5. Timing of Policy Actions
- Appendix Tables
- A1.1. Emerging Market Countries Ranked by GDP and GDP Per Capita, 1998
- A1.2. Emerging Market Countries: Inflation Targeting and Comparator Countries
- A1.3. Key Financial Ratios for Inflation Targeters
- A1.4. Industrial and Emerging Market Countries: Currency Crises and Crashes, 1975–97
- A2.1. Institutional Aspects of Inflation Targeting in Emerging Market Countries
- A2.2. Institutional Aspects of Inflation Targeting in Industrial Countries
The following symbols have been used throughout this paper:
- … to indicate that data are not available;
- —to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist;
- – between years or months (i.e., 1998–99 or January–June) to indicate the years or months covered, including the beginning and ending years or months;
- / between years or months (i.e., 1998/99) to indicate a crop or fiscal (financial) year.
“Billion” means a thousand million;.
Minor discrepancies between constituent figures and totals are due to rounding.
The term “country,” as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice: the term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis.
Inflation targeting is gaining in popularity among emerging market countries. This has led to an increased demand for technical assistance from the IMF to help these countries meet the practical challenges that they face in adopting this policy regime. This paper summarizes the lessons that can be drawn for emerging market countries on the operational and institutional policy challenges posed by inflation targeting. It is based on industrial countries’ experiences with inflation targeting as well as the relatively short experience of emerging market countries. The lessons drawn here can be expected to be refined as the range of country experience with inflation targeting widens.
The material in this paper was originally prepared for the information of the IMF’s Executive Board in August 2000. The authors are most grateful for the detailed comments and discussions with officials in a number of inflation targeting central banks, notably Kevin Clinton (Bank of Canada), Guy Debelle (Reserve Bank of Australia), Akiva Offenbacher (Bank of Israel), Michael Reddell (Reserve Bank of New Zealand), Klaus Schmidt-Hebbel (Banco Central de Chile), and Roger Clews and Gabriel Sterne (Bank of England). For guidance throughout the preparation of the paper, the authors are especially indebted to Stefan Ingves, Director of the IMF’s Monetary and Exchange Affairs (MAE) Department, Tomas J.T. Balifio, V. Sundararajan, and Piero Ugolini. The paper has also benefited from comments of Stanley Fischer. First Deputy Managing Director of the IMF, and many colleagues in MAE and other departments in the IMF. The authors would particularly like to thank Warren Coats, Claudia Dziobek, Haizhou Huang, Alain Ize, R. Barry Johnston, Meral Karasulu, John E. Leimone, Alfredo Leone, R. Armando Morales, and Mark Swinburne—all of MAE. The authors are grateful for the excellent cooperation with colleagues in other departments of the IMF and would like to acknowledge the contributions they have received, in particular from Anupam Basu, Gunnar Jonsson, and Arto Kovanen (African Department); Scott Roger (Asia and Pacific Department): Masahiko Takeda (European I Department); David Owen and Odd Per Brekk (European II Department); Adrienne Cheasty and Istvan P. Szeékely (Fiscal Affairs Department); Enzo Croce and Evan Tanner (IMF Institute); Timothy Lane (Policy Development and Review Department); Peter Isard, Eswar S. Prasad and Miguel Savastano (Research Department); David Goldsbrough, Francisco de Asis Nadal-De Simone, and Gerd J. Schwartz (Western Hemisphere Department).
The authors are also indebted to Patricia Mendoza and Leny Nikolov for excellent secretarial assistance in numerous drafts, Kiran Sastry for research assistance, and Natalie Baumer for editorial assistance. Jacqueline Irving of the External Relations Department edited the manuscript and coordinated the production of the publication. The views expressed in the paper, as well as any errors, are the sole responsibility of the authors and do not necessarily reflect the views of the national authorities or the IMF Executive Directors.