Inflation targeting: design, performance, challenges
Inflation rates fell markedly around the world during the last decade of twentieth century. This was the result of a profound change in the conduct of monetary policy, clearly driven by the strong, anti-inflationary stance adopted by central banks in industrial and developing countries. The central banks' new attitude toward inflation was largely the result of their newly acquired ability to conduct monetary policy independently, transparently, and credibly. One monetary policy approach that combines these virtues with a pragmatic use of policy instruments is inflation targeting. Following the pioneering example of New Zealand and Chile, countries as diverse as Brazil, England, and Sweden have formally adopted inflation targeting as the defining feature of their monetary policies. The essays in this volume study inflation targeting as a new guiding framework for monetary policy. They help to define inflation targeting as it is actually implemented, evaluate its effectiveness compared to other monetary approaches both empirically and theoretically, and offer the best designs for putting it into practice. Along with original theoretical and cross-country work, this volume includes case studies on four inflation-targeting countries, namely, Chile, New Zealand, Australia, and Brazil.Inflation targeting: an overview / Norman Loayza, Raimundo Soto -- Inflation targets in a global context / Gabriel Sterne -- Monetary policy under flexible exchange rates: an introduction to inflation targeting / Pierre-Richard Agénor -- A decade of inflation targeting in the world: what do we know and what do we need to know? / Frederic S. Mishkin, Klaus Schmidt-Hebbel -- Does inflation targeting make a difference? / Vittorio Corbo, Óscar Landerretche, Klaus Schmidt-Hebbel -- Targeting inflation in an economy with staggered price setting / Jordi Galí -- Alternative monetary rules in the open-economy: a welfare-based approach / Eric Parrado, Andrés Velasco -- A critical view of inflation targeting: crises, limited sustainability and aggregate shocks / Michael Kumhof -- Inflation targeting and the liquidity trap / Bennett T. McCallum -- Inflation targeting in the context of IMF-Supported adjustment programs / Mario I. Blejer, Alfredo M. Leone, Pau Rabanal, Gerd Schwartz -- Inflation targeting and the inflation process: lessons from an open economy / Guy Debelle, Jenny Wilkinson -- Lessons from inflation targeting in New Zealand / Aaron Drew -- Inflation targeting in Brazil: shocks, backward-looking prices, and IMF conditionality / Joel Bogdanski, Paulo Springer de Freitas, Ilan Goldfajn, Alexandre Antonio Tombini -- A decadeof inflation targeting in Chile: developments, lessons, and challenges / Felipe G. Morandé -- New frontiers for menetary policy in Chile / Pablo S. García, Luis Óscar Herrera, Rodrigo O. Valdés.