The author thanks Sean Collins, Weshah Razzak, and especially three anonymous referees for their comments on an earlier version of this article. The views expressed in this study are those of the author and do not necessarily reflect those of the International Monetary Fund or its staff.
INFLATION TARGETERS IN PRACTICE: A LUCKY LOT?
Article first published online: 18 JUL 2008
Contemporary Economic Policy
Volume 19, Issue 3, pages 239–253, July 2001
How to Cite
Simone, F. D. A. N.-D. (2001), INFLATION TARGETERS IN PRACTICE: A LUCKY LOT?. Contemporary Economic Policy, 19: 239–253. doi: 10.1093/cep/19.3.239
- Issue published online: 18 JUL 2008
- Article first published online: 18 JUL 2008
Some observers have attributed the success of inflation targeters in reducing inflation to the global disinflation of the 1990s. As a result, inflation targeting countries have been considered to be a lucky lot. One key policyimplication of that is that if the international environment becomes again hostile to low inflation in the future, inflation targeting will prove to have been a mere fad. This article views inflation targeting not just as a rule but as a framework for the conduct of monetary policy, and it argues that currently available analyses of the experience of inflation targeting countries have serious weaknesses. One weakness is that those studies have not taken into account that regime changes may alter the quantitative and qualitative interaction among small, open economies and the rest of the world. Another weakness is that those studies have not recognized that the extraction of common trends and cycles is contingent on the nature of the monetary policy regime. It is likely that inflation targeting frameworks may imply a new beneficial trend in monetary policy making. This suggests that if the international environment becomes again hostile to low inflation in the future, an inflation targeting framework may become a viable alternative to a central bank that remains committed to price stability.