Frontiers of Monetary Policy: Global Trends and Russian Inflation Targeting Practices

Abstract

The IMF published in April 2018 the book Advancing the Frontiers of Monetary Policy written by its experts and edited by Tobias Adrian, Douglas Laxton, and Maurice Obstfeld, providing a rare chance to learn the views of people who could be called the architects of inflation targeting. The book deals with practical issues of using this monetary policy regime which has quickly gained wide acceptance and is currently employed by central banks of most countries in the world. Some issues of inflation targeting policy further improvements brought up in the book are also relevant to Russia.

Fear of Forward Guidance

“…Increasingly, clear communication on behalf of the central bank is seen as essential for an efficient monetary policy, a point highlighted both in Adrian et al (2018) and Yudaeva (2018). In its official statements, the CBR (Bank of Russia, 2017) has stated that, in order to build confidence in its policy and reduce and anchor infaltion expectations, it will increase its communication transparency and be more open about the measures it employs to achieve the goals of the monetary policy.…”

“…An exception would be when the central bank itself decides to comment on such divergences. Such a case was registered in 2016, as documented in Yudaeva (2018), when the CBR identified an appreciable divergence between the CBR's internal and market interest rate forecasts. This prompted the CBR to declare that it will be clearer in its communications and announce a commitment to not revise its interest rate for several months.…”

“…Before proceeding any further, we need to acknowledge that forward guidance is an umbrella term covering a diverse set of communication strategies, which can be broadly divided into three groups: 1 -'General policy comments' , as per Yudaeva (2018), are verbal qualitative descriptions of the future monetary policy stance; -'Conventional forward guidance' , as per Adrian et al (2018), implies publication of the central bank's forecast of the policy rate path or paths; -'Сommitment' , as per Smith and Becker (2015), includes conditional and unconditional commitments to a published interest rate trajectory. This article focuses exclusively on the second type of forward guidance and, more precisely, it is a response to the review of Adrian et al (2018) by Yudaeva (2018). The latter summarises the case of the Central Bank of Russia (CBR) against the publication of key rate forecasts.…”

“…The depth of the banks' experience with conventional forward guidance is also substantial, ranging from 20 years for the original adopter, RBNZ, to 10 years for the CNB. In the fourth section we review the case against conventional forward guidance, as summarized in Yudaeva (2018), and comment on the salience of the concerns raised by the practising central banks. We also highlight the approaches that the aforementioned central banks used to avoid confusion between guidance and commitment.…”

The Impact of Inflation Anchor Strength and Monetary Policy Transparency on Inflation During the Period of Emerging Market Volatility in Summer 2018

“…-Publication of the future interest rate curve. Arguments for and against this initiative are put forward in in detail in Yudaeva (2018) and Isakov et al (2018). Thirdly, the government and the central bank should continue their efforts to increase the financial literacy of the population.…”