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A Model for Full-Fledged Inflation Targeting and Application to Ghana
Author: Kevin Clinton, Jihad Dagher, Mr. Ondrej Kamenik, Mr. Douglas Laxton, Ali Alichi, and Marshall Millshttps://orcid.org/0000-0003-4809-6446
Series:
IMF Working Papers
Volume/Issue:
Volume 2010: Issue 025
Language:
English
Publication Date:
01 Jan 2010
DOI:
https://doi.org/10.5089/9781451962444.001
ISBN:
9781451962444
ISSN:
1018-5941
Pages:
30
Keywords:
WP; interest rate; monetary policy
Legal-disclaimer:
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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A model in which monetary policy pursues full-fledged inflation targeting adapts well to Ghana. Model features include: endogenous policy credibility; non-linearities in the inflation process; and a policy loss function that aims to minimize the variability of output and the interest rate, as well as deviations of inflation from the long-term low-inflation target. The optimal approach from initial high inflation to the ultimate target is gradual; and transitional inflation-reduction objectives are flexible. Over time, as policy earns credibility, expectations of inflation converge towards the long-run target, the output-inflation variability tradeoff improves, and optimal policy responses to shocks moderate.
Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund