Inflation Targeting Regimes, Issues 2003-2009
International Monetary Fund, Jan 1, 2003 - Inflation (Finance) - 36 pages
This paper classifies countries that define their monetary policy framework by an inflation target into full-fledged inflation targeters, eclectic inflation targeters and inflation targeting lite regimes. This classification is based on indicators of the clarity and credibility of the commitment to the inflation target. The three regimes can be viewed as corresponding to different welfare maximizing combinations of policy objectives, each conditional on a country's "endowed" level of credibility. The credibility of the regimes is related empirically to structural differences. Policy implications are drawn, especially for emerging market countries aiming at full-fledged inflation targeting.
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Classification of Inflation Targeting Countries into Three Regimes
Structural Underpinnings of the Different Inflation Targeting Regimes
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1-3 percent inflation adopt FFIT adoption of FFIT capita GDP central bank financing clarity and credibility classification different inflation targeting Eclectic inflation targeting Economic emerging market countries emerging market FFIT EMFFIT exchange rate arrangement exchange rate regimes FFIT and ITL FFIT countries FFIT to EIT financial stability fiscal position fixed exchange rate flexibility floating exchange rate full-fledged inflation targeting gauge government debt high credibility indicators industrial countries inflation objective inflation targeting countries inflation targeting lite inflation targeting regimes interest rates International Monetary Fund ITL countries ITL to FFIT Japan level of credibility low credibility macroeconomic Mishkin monetary policy framework monetary regime nominal anchor open market operations output stabilization output variability percent inflation target policy credibility policy objectives price stability regressions restrictions on central revealed preference Romania Schaechter Schmidt-Hebbel Slovenia Stock market capitalization structural switch from FFIT Table Taylor Curve three inflation targeting three regimes welfare maximizing combinations