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Policy Conflicts and Inflation Targeting: The Role of Credit Markets
Author:
Woon Gyu Choi null

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Mr. David Cook
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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 072
Language:
English
Publication Date:
06 Apr 2018
DOI:
https://doi.org/10.5089/9781484350515.001
ISBN:
9781484350515
ISSN:
1018-5941
Pages:
36
Keywords:
WP; core inflation rate; business cycle; exchange rate; Inflation Targeting; Policy Conflicts; Taylor rule; Credit Growth; Macroprudential Policy; inflation gap; coefficient estimate; Inflation; Credit; Central bank policy rate; Output gap; Global; Africa
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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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This paper shows that stabilizing volatility in credit growth often conflicts with price stability: unusual credit expansions often occur when inflation is low relative to goals, and credit slumps often appear when inflation is overshooting. We find that central banks with inflation targeting (IT) are responsive to credit conditions in both advanced economies and emerging-market economies (EMEs). However, EMEs are more sensitive to inflation conditions, responding to credit growth only when consistent with IT. Macroprudential measures are also deployed to address credit growth volatility when orthodox policy moves would be inconsistent with IT, complementing monetary policy.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund