Inflation Targeting - The Holy Grail of Monetary Policy?

15 Pages Posted: 24 Aug 2007 Last revised: 26 Jul 2022

Date Written: January 1, 2002

Abstract

This working paper was written by Hans Genberg (Graduate Institute of International Studies).

This paper argues that the success of inflation targeting is principally the result of having a clear unambiguous goal, price stability, for monetary policy that is determined not only by the central bank but by the political authorities more generally. With such a goal in place, and with support from other macroeconomic policies, the actual operating procedure a central bank should follow depends critically on the transmission mechanism of monetary policy and on the sources of shocks in the economy. It follows that implementation of a strategy of targeting inflation could look very different from one country to another. What would be an appropriate policy rule in an industrialized country would not necessarily be suitable in an emerging market even if the ultimate goal of the central bank were the same.

Suggested Citation

Institute for Monetary and Financial Research, Hong Kong, Inflation Targeting - The Holy Grail of Monetary Policy? (January 1, 2002). Hong Kong Institute for Monetary and Financial Research (HKIMR) Research Paper WP No. 02/2002, Journal of Policy Reform, 5(3), 2002, pp. 161-171, Available at SSRN: https://ssrn.com/abstract=1009110 or http://dx.doi.org/10.2139/ssrn.1009110

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