IT Framework Design Parameters, Issues 2009-2087
International Monetary Fund, Apr 1, 2009 - Business & Economics - 16 pages
This is the third chapter of a forthcoming monograph entitled "On Implementing Full-Fledged Inflation-Targeting Regimes: Saying What You Do and Doing What You Say." It examines a number of elements in the design of an inflation-targeting framework. These include the definition of the target variable, the relevance of core measures of inflation, and the advantages and disadvantages of point targets, point targets with a band, and range targets. It then discusses the choice of a long-term inflation rate, the target horizon, and the policy horizon.
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Alichi anchoring long-term inﬂation asset prices band or range Bank of England beneﬁts central bank commodity price shocks components conﬁdence core CPI core inﬂation core measure CPI inﬂation Credibility Stock design parameters diﬂiculty disinﬂation path emerging economies emerging-market economies endogenous equilibrium favorable ﬁnd framework Freedman future inﬂation Giirkaynak guide to policy higher inﬂation IMF Working Paper increase in inﬂation industrialized countries industrialized economies inﬂation forecast inﬂation moving inﬂation rate inﬂation-targeting countries Isard less credible economy long-run inﬂation target long-run target long-term inﬂation expectations loss function low inﬂation measure of core monetary policy credibility nominal interest rates percentage point point target policy actions policy horizon policy interest rate positive output gap pressure on inﬂation range target rate of inﬂation real interest rates Roger and Stone show that long-term signiﬁcant target horizon target range target variable total CPI types of economy typically unfavorable supply shock volatility zero lower bound