Monetary policy under inflation targeting
Inflation targeting cum exchange-rate floating has become the framework of choice in countries pursuing an independent and effective monetary policy. Since its adoption by New Zealand (1990) and Chile (1991), central banks of nearly 25 industrial and emerging economies have implemented an explicit inflation target as their nominal anchor. Many more emerging economies are planning to adopt inflation targeting in coming years. The theory and practice of monetary policy under inflation targeting have evolved hand-in-hand, benefiting mutually. This volume presents 14 papers that add substantially to the body of theoretical findings, empirical research, and policy lessons on the conduct of monetary policy under inflation targeting. New theoretical work focuses on the optimality of inflation targeting under different fiscal policies and varying degrees of price stickiness, and considering the zero-bound problem. Other analytical research addresses improvements in central bank communication required to raise monetary policy efficiency and analyzes the optimal degree of monetary policy transparency and communication. New findings are provided on the choice between inflation and price-level targeting. This book also presents a large body of new empirical evidence on the role of the exchange rate, pre-conditions at the start of the regime, gains in macro performance and monetary policy efficiency, and anchoring of inflation expectations in inflation-targeting countries, in comparison to non-targeting countries. The transition from partial to full-fledged inflation targeting in Chile receives particular attention, reporting changes in monetary policy rules and in inflation determinants and dynamics.Monetary policy under inflation targeting: an introduction / Frederic S. Mishkin, Klaus Schmidt-Hebbel -- A prize worth having: the IMF and price stability / Anne O. Krueger -- Optimal nflation targeting under alternative fiscal regimes / Pierpaolo Benigno, Michael Woodford -- Inflation targeting under imperfect knowledge / Athanasios Orphanides, John C. Williams -- Optimal inflation stabilization in a medium-scale macroeconomic model / Stephanie Schmitt-Grohé, Martín Uribe -- Optimal inflation targeting: further developments of inflation targeting / Lars E.O. Svensson -- Transparency, flexibility, and inflation targeting / Carl E. Walsh -- Inflation targeting versus price-path targeting: looking for improvements / Stephen G. Cecchetti, Stefan Krause -- Does inflation targeting make a difference? / Frederic S. Mishkin, Klaus Schmidt-Hebbel -- The relationship between exchange rates and inflation targeting revisited / Sebastián Edwards -- Inflation targeting and the anchoring of inflation expectations in the western hemisphere / Refet S. Gürkaynak, Andrew T. Levin, Andrew N. Marder, Eric T. Swanson -- Under what conditions can inflation targeting be adopted? The experience of emerging markets / Nicoletta Batini, Douglas Laxton -- New keynesian models for Chile in the inflation-targeting period / Rodrigo Caputo, Felipe Liendo, Juan Pablo Medina -- Credibility and inflation targeting in Chile / Luis F. Céspedes, Claudio Soto.