Inflation Targeting At 20: Achievements and Challenges

Abstract

This paper provides an overview of inflation targeting frameworks and macroeconomic performance under inflation targeting. Inflation targeting frameworks are generally quite similar across countries, and a broad consensus has developed in favor of "flexible" inflation targeting. The evidence shows that, although inflation target ranges are missed frequently in most countries, the inflation and growth performance under inflation targeting compares very favorably with performance under alternative frameworks. Inflation targeters also tentatively appear to be coping better with the commodity price and financial shocks in 2007-2009 than non-inflation targeters. Key issues going forward include adapting inflation targeting to emerging market and developing countries, and incorporating financial stability issues into the framework.

Does Inflation Targeting Matter? An Experimental Investigation

“…While a large part of the literature suggests that explicit IT regimes are generally associated with higher macroeconomic performances (Levin et al, 2004;Roger and Stone, 2005;Roger, 2009), some studies including Ball and Sheridan (2005), Lin and Ye (2007), Angeriz and Arestis (2008), and Willard (2012) find that there is no evidence that these performances are attributable to IT in OECD countries: both targeting and non-targeting economies have been successful in achieving and maintaining low inflation, suggesting that a central bank does not need to implement an IT regime to achieve higher macroeconomic performances. To explain these findings, Svensson (2010) argues that many non-IT developed countries have adopted a monetary policy framework that is very similar to IT, which makes the real role of the latter hardly interpretable.…”

From Bretton Woods to Inflation Targeting: Financial Change and Monetary Policy Evolution in Europe

“…The first country to introduce a formal inflation target (IT) was New Zealand in 1990, but it was quickly followed by Canada in 1991, the UK in 1992, Sweden, Finland, and Australia in 1993, and a range of others thereafter (see Roger, 2010). The introduction of IT typically followed the failure of the previous monetary policy framework.…”

Enhanced Economic Stability and the Role of Inflation Targeting Policy: Empirical Study on Case of Developing Countries

“…By using panel data, we test the effect of inflation targeting while controlling for the "Great Moderation" for the appendix).For purpose of comparability, our sample relies on Lin andYe (2009) andRoger (2009 Table 1contains the estimations of equation (1) and (2) for every country sample. The effects of IT are considered statistically significant for all groups of countries emerging even for countries that have experienced hyperinflation since the 80s.…”