Cover IMF Working Papers
Inflation Targeting: Theory and Policy Implications
Author:
Mr. J. H. Green
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Series:
IMF Working Papers
Volume/Issue:
Volume 1996: Issue 065
Language:
English
Publication Date:
01 Jun 1996
DOI:
https://doi.org/10.5089/9781451848656.001
ISBN:
9781451848656
ISSN:
1018-5941
Pages:
22
Keywords:
WP; central bank; monetary policy; inflation bias; inflation-output tradeoff; inflation expectation; inflation targeting policy framework; government-central bank relationship; policy rule; government-central bank arrangement; inflation bias need; inflation targeting framework; inflation target approach; commitment policy regime; inflation target policy; Inflation targeting; Inflation; Price stabilization; Monetary policy frameworks; Potential output; Europe
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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As with many monetary policy frameworks, inflation targeting is subject to the well-known problem of inflation bias. With inflation targeting, however, the bias becomes apparent not as inflation above desired levels, but as a wedge between the announced target and observed inflation. This inconsistency could render the framework neither credible nor enforceable since the target is overshot on average. The problem can be addressed by assigning price stability as the single policy objective or by assigning a joint target for both inflation and output, provided that they are consistent. Many inflation targeting countries take the joint target approach implicitly through transparency measures which publicly assess monetary conditions in terms of potential output and output gaps.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund
Volume 1996: Issue 065