Inflation Targeting: Lessons from Four Countries

135 Pages Posted: 13 Sep 2000 Last revised: 6 Oct 2010

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Adam S. Posen

Peterson Institute for International Economics

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Date Written: February 1998

Abstract

In recent years, a number of central banks have announced numerical inflation targets as the basis for their monetary strategies. After outlining the reasons why such strategies might be adopted in the pursuit of price stability, this study examines the adoption, operational design, and experience of inflation targeting as a framework for monetary policy in the first three countries to undertake such strategies New Zealand, Canada, and the United Kingdom. It also analyzes the operation of the long-standing German monetary targeting regime, which incorporated many of the same features as later inflation-targeting regimes. The key challenge for all these monetary" frameworks has been the appropriate balancing of transparency and flexibility in policymaking. The study finds that all of the targeting countries examined have maintained low rates of inflation and increased the transparency of monetary policymaking without harming the real economy through policy rigidity in the face of economic developments. A convergence of design choices on the part of targeting countries with regard to operational questions emerges from this comparative study, suggesting some lines of best practice for inflation-targeting frameworks.

Suggested Citation

Mishkin, Frederic S. and Posen, Adam S., Inflation Targeting: Lessons from Four Countries (February 1998). NBER Working Paper No. w6126, Available at SSRN: https://ssrn.com/abstract=225891

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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National Bureau of Economic Research (NBER)

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Adam S. Posen

Peterson Institute for International Economics ( email )

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202-328-5432 (Fax)

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