Inflation Targeting as a Framework for Monetary Policy

Economic Issues, No. 15, International Monetary Fund, 1998

Posted: 23 Sep 2009 Last revised: 24 Sep 2009

See all articles by Guy Debelle

Guy Debelle

Reserve Bank of Australia

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Miguel A. Savastano

Monetary and Capital Markets Departrment

Sunil Sharma

George Washington University - Elliott School of International Affairs

Date Written: September 1, 1998

Abstract

The two major prerequisites for adopting inflation targeting are a degree of independence of monetary policy and absence of commitment to a particular level for the exchange rate. A country satisfying these requirements could choose to conduct its monetary policy in a framework of inflation targeting. Seven industrial economies have used such a framework and have so far met with apparent success. These countries have adopted inflation targeting from a starting point of low (less than 10 percent) inflation, considerable exchange rate flexibility, and substantial independence of the central bank -- conditions rarely found in developing countries. In many of the latter, the requirements for an effective inflation-targeting strategy are absent, either because seigniorage is an important source of financing or because there is no consensus on making low inflation the overriding goal of monetary policy.

Suggested Citation

Debelle, Guy and Masson, Paul R. and Savastano, Miguel A. and Sharma, Sunil, Inflation Targeting as a Framework for Monetary Policy (September 1, 1998). Economic Issues, No. 15, International Monetary Fund, 1998, Available at SSRN: https://ssrn.com/abstract=1474540

Guy Debelle

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000
Australia

Paul R. Masson

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

The Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
202-797-6278 (Phone)
202-797-2968 (Fax)

Miguel A. Savastano

Monetary and Capital Markets Departrment ( email )

700 19th Street NW
Washington, DC 20431
United States

Sunil Sharma (Contact Author)

George Washington University - Elliott School of International Affairs ( email )

Institute for International Economic Policy
1957 E Street NW
Washington, DC 20052
United States

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