Table of ContentsDetailsPageChapter 1011.1 Introduction011.2 Definition01Chapter 2052.1 Monetary Aggregates052.2 Exchange Rate Targeting062.3 Pre-requisites for inflation targeting072.4 Advantages and Disadvantages092.5 Constrained Discretion112.6 Corrective actions to remove disadvantages12Chapter 3133.1 Implementation of Inflation Targeting133.2 Final Target Selection14Chapter 4164.1 Conclusion16Bibliography & References17Define "Inflation Targeting" and critically evaluate this frame work for the conduct of this monetary policy. Does "Inflation Targeting" work in emerging markets?Chapter 1IntroductionDefinitionChapter 1IntroductionOne of the more interesting developments in today's dynamic environment in the past dozen years or so has been the increasingly widespread adoption of the monetary policy framework known as inflation targeting.
Inflation targeting are policies designed to stabilize the economy through counter cyclical policies while ensuring that average inflation remains low.
DefinitionBernanke et al, 1999 provides the following definition:"Inflation targeting is a framework for monetary policy characterized by the public announcement of official quantitative targets (or target ranges) for the inflation rate over one or more time horizons, and by explicit acknowledgement that low, stable inflation is monetary policy's primary long-run goal.
Among other important features of inflation targeting are vigorous efforts to communicate with the public about the plans and objectives of the monetary authorities, and, in many cases, mechanisms that strengthen the central bank's accountability for attaining those objectives".
According to the above mentioned definition inflation targeting covers following areas which is also elaborated by Mishkin, one of the authors of a recent influential book on the subject. (Mishkin (2000), p. 105).
1) The communication of medium term numerical targets for the inflation to the public.
2) An institutional commitment of setting price stability as the primary goal.
3) To devise an information inclusive strategy in which many variables contributes to decide the policy instruments.
4) Increase communication with the public and market about the plans, objectives and decision of...