Inflation Targeting
Inflation targeting
Lecture 11
Objectives to explain the concept of inflation targeting;
to see how is implemented inflation targeting;
to identify the role of credibility and transparency on the monetary policy efficiency.
23.05.2012
2
Inflation targeting
Brief history
Canada – 1991 UK –1992 Finland – 1993 Sweden – 1993 Spain – 1994 Australia – 1994 Chile – 1991 Israel – 1992 Peru – 1994 Poland – 1998 Czech Rep. – 1998 Romania - 2005
New Zeeland - 1990
23.05.2012
3
Inflation targeting
What is inflation targeting?
“… 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”
Bernanke, S.; Laubach, T.; Mishkin, F.S.; Posen, A. (2001)
23.05.2012 4
Inflation targeting
What is inflation targeting?
Essential issues of inflation targeting price stability – the sole objective, or at least the main objective official quantitative target for inflation objectives and instruments’ independence communication strategy with the society maintaining and increasing the level of credibility
23.05.2012
5
Inflation targeting
A framework, not a rule
Rules Discretion (freedom of action)
Woodford: “ central banking is not like steering an oil tanker, or even guiding a spacecraft, which follows a trajectory that depends on constantly changing factors , but does not depend on the vehicle’s own expectations where it is heading”, while the society, based on its own expectations and on the credibility of central bank, will react, modifying its expectations and its behavior.
23.05.2012
6
Inflation targeting
A framework, not a rule constrained discretion impose a conceptual structure and its inherent discipline on the central bank does not impose rules, but ask for a detailed analysis of
Lecture 11
Objectives to explain the concept of inflation targeting;
to see how is implemented inflation targeting;
to identify the role of credibility and transparency on the monetary policy efficiency.
23.05.2012
2
Inflation targeting
Brief history
Canada – 1991 UK –1992 Finland – 1993 Sweden – 1993 Spain – 1994 Australia – 1994 Chile – 1991 Israel – 1992 Peru – 1994 Poland – 1998 Czech Rep. – 1998 Romania - 2005
New Zeeland - 1990
23.05.2012
3
Inflation targeting
What is inflation targeting?
“… 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”
Bernanke, S.; Laubach, T.; Mishkin, F.S.; Posen, A. (2001)
23.05.2012 4
Inflation targeting
What is inflation targeting?
Essential issues of inflation targeting price stability – the sole objective, or at least the main objective official quantitative target for inflation objectives and instruments’ independence communication strategy with the society maintaining and increasing the level of credibility
23.05.2012
5
Inflation targeting
A framework, not a rule
Rules Discretion (freedom of action)
Woodford: “ central banking is not like steering an oil tanker, or even guiding a spacecraft, which follows a trajectory that depends on constantly changing factors , but does not depend on the vehicle’s own expectations where it is heading”, while the society, based on its own expectations and on the credibility of central bank, will react, modifying its expectations and its behavior.
23.05.2012
6
Inflation targeting
A framework, not a rule constrained discretion impose a conceptual structure and its inherent discipline on the central bank does not impose rules, but ask for a detailed analysis of
Bibliography: Ben S. Bernanke, Thomas Laubach, Frederich S. Mishkin, Adam Posen, Inflation targeting. Lessons from the international experience, Princeton University Press, 1999, p. 4 – 6, 26 - 38 23.05.2012 18 Inflation targeting