Inflation Targeting-Central Bank Practice Overseas

30 Pages Posted: 7 Dec 2008 Last revised: 13 Feb 2009

Date Written: October 1, 2008

Abstract

This policy brief, which is based on an internal memo, summarizes the institutional and operational features observed in the 27 countries that have gained experience with inflation targeting (IT). It finds considerable convergence in many IT practices across countries over the past 10 to 15 years but much variation in policymakers' choices concerning such key issues as how they treat the borders of the target range. On the whole, most IT banks have chosen to practice inflation targeting in a more flexible and, thus, resilient fashion than many analysts once feared - seemingly without much loss of credibility. Currently, however, after a prolonged period of rapidly rising commodity and asset prices, followed by a period of sharp oil and asset price declines, IT is clearly facing the greatest challenges in its short history of relatively widespread use. Fortunately, one key lesson that emerges from our experience to date is that much of the ability of inflation targeting to help moor inflation expectations likely stems from the premium it places on improving transparency standards. These standards are available to all central banks, whether they choose to practice inflation targeting or not.

Suggested Citation

Sneddon-Little, Jane and Romano, Teresa, Inflation Targeting-Central Bank Practice Overseas (October 1, 2008). FRB of Boston Public Policy Brief No. 08-1. Available at SSRN: https://ssrn.com/abstract=1310712 or http://dx.doi.org/10.2139/ssrn.1310712

Jane Sneddon-Little (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Teresa Romano

Goucher College ( email )

1021 Dulaney Valley Road
Baltimore, MD 21204-2794
United States

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