A Critical View of Inflation Targeting: Crises, Limited Sustainability, and Aggregate Shocks
This paper presents a critical appraisal of inflation targeting as a monetary policy regime for emerging markets. It is shown that this policy, if understood as a strict commitment to a CPI inflation target, shares many features with exchange rate targeting and is quite different from flexible exchange rates under money growth rules. Inflation targets are vulnerable to speculative attacks, although less so than exchange rate targets. They perform worse than exchange rate targets when policy sustainability is limited. And their relative performance under exogenous shocks, not surprisingly, depends on the nature and direction of those shocks. Given this lack of an obvious advantage over exchange rate targets, the real attraction of inflation targets may be that they give the policymaker discretion. This, in the context of many emerging markets, has to be a cause for concern.
Year of publication: |
2001-11
|
---|---|
Authors: | Kumhof, Michael |
Institutions: | Banco Central de Chile |
Saved in:
freely available
Saved in favorites
Similar items by person
-
A Critical View of Inflation Targeting: Crises, Limited Sustaintability, and Aggregate Shocks
Kumhof, Michael,
-
Pricing Policies and Inflation Inertia
Céspedes, Luis Felipe, (2003)
-
Chile’s Structural Fiscal Surplus Rule: a Model – Based Evaluation
Kumhof, Michael, (2010)
- More ...