Inflation targeting

Inflation targeting is a monetary policy regime in which a central bank has an explicit target inflation rate for the medium term and announces this inflation target to the public. The assumption is that the best that monetary policy can do to support long-term growth of the economy is to maintain price stability. The central bank uses interest rates, its main short-term monetary instrument.[1][2][3]

An inflation-targeting central bank will raise or lower interest rates based on above-target or below-target inflation, respectively. The conventional wisdom is that raising interest rates usually cools the economy to rein in inflation; lowering interest rates usually accelerates the economy, thereby boosting inflation. The first three countries to implement fully-fledged inflation targeting were New Zealand, Canada and the United Kingdom in the early 1990s, although Germany had adopted many elements of inflation targeting earlier.[4][5]

History

Early proposals of monetary systems targeting the price level or the inflation rate, rather than the exchange rate, followed the general crisis of the gold standard after World War I. Irving Fisher proposed a "compensated dollar" system in which the gold content in paper money would vary with the price of goods in terms of gold, so that the price level in terms of paper money would stay fixed. Fisher's proposal was a first attempt to target prices while retaining the automatic functioning of the gold standard. In his Tract on Monetary Reform (1923), John Maynard Keynes advocated what we would now call an inflation targeting scheme. In the context of sudden inflations and deflations in the international economy right after World War I, Keynes recommended a policy of exchange rate flexibility, appreciating the currency as a response to international inflation and depreciating it when there are international deflationary forces, so that internal prices remained more or less stable. Interest in inflation targeting waned during the Bretton Woods era (1944–1971), as they were inconsistent with the exchange rate pegs that prevailed during three decades after World War II.

New Zealand, Canada, United Kingdom

Inflation targeting was pioneered in New Zealand in 1990.[6] Canada was the second country to formally adopt inflation targeting in February 1991.[4][5]

The United Kingdom adopted inflation targeting in October 1992 after exiting the European Exchange Rate Mechanism.[4][7] The Bank of England's Monetary Policy Committee was given sole responsibility in 1998 for setting interest rates to meet the Government's Retail Prices Index (RPI) inflation target of 2.5%.[8] The target changed to 2% in December 2003 when the Consumer Price Index (CPI) replaced the Retail Prices Index as the UK Treasury's inflation index.[9] If inflation overshoots or undershoots the target by more than 1%, the Governor of the Bank of England is required to write a letter to the Chancellor of the Exchequer explaining why, and how he will remedy the situation.[10][11][12] The success of inflation targeting in the United Kingdom has been attributed to the Bank's focus on transparency.[7] The Bank of England has been a leader in producing innovative ways of communicating information to the public, especially through its Inflation Report, which have been emulated by many other central banks.[4]

Inflation targeting then spread to other advanced economies in the 1990s and began to spread to emerging markets beginning in the 2000s.

European Central Bank

Although the ECB does not consider itself to be an inflation-targeting central bank,[13] after the inception of the euro in January 1999, the objective of the European Central Bank (ECB) has been to maintain price stability within the Eurozone.[14] The Governing Council of the ECB in October 1998[15] defined price stability as inflation of under 2%, "a year-on-year increase in the Harmonised Index of Consumer Prices (HICP) for the euro area of below 2%" and added that price stability "was to be maintained over the medium term".[16] The Governing Council confirmed this definition in May 2003 following a thorough evaluation of the ECB's monetary policy strategy. On that occasion, the Governing Council clarified that "in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term".[15] Since then, the numerical target of 2% has become common for major developed economies, including the United States (since January 2012) and Japan (since January 2013).[17]

Emerging markets

In 2000, Frederic S. Mishkin concluded that "although inflation targeting is not a panacea and may not be appropriate for many emerging market countries, it can be a highly useful monetary policy strategy in a number of them".[18]

Chile

In Chile, a 20% inflation rate pushed the Central Bank of Chile to announce at the end of 1990 an inflation objective for the annual inflation rate for the year ending in December 1991.[18] However, Chile was not regarded as a fully-fledged inflation targeter until 1999.[5]

Czech Republic

The Czech National Bank (CNB) is an example of an inflation targeting central bank in a small open economy with a recent history of economic transition and real convergence to its Western European peers. Since 2010 the CNB uses 2 percent with a +/- 1pp range around it as the inflation target.[19] The CNB places a lot of emphasis on transparency and communication; indeed, a recent study of more than 100 central banks found the CNB to be among the four most transparent ones.[20]

In 2012, inflation was expected to fall well below the target, leading the CNB to gradually reduce the level of its basic monetary policy instrument, the 2-week repo rate, until the zero lower bound (actually 0.05 percent) was reached in late 2012. In light of the threat of a further fall in inflation and possibly even of a protracted period of deflation, on 7 November 2013 the CNB declared an immediate commitment to weaken the exchange rate to the level of 27 Czech korunas per 1 euro (day-on-day weakening by about 5 percent) and to keep the exchange rate from getting stronger than this value until at least the end of 2014 (later on this was changed to the second half of 2016). The CNB thus decided to use the exchange rate as a supplementary tool to make sure that inflation returns to the 2 percent target level. Such a use of the exchange rate as tool within the regime of inflation targeting should not be confused with a fixed exchange-rate system or with a currency war.[21][22][23]

United States

In a historic shift on 25 January 2012, U.S. Federal Reserve Chairman Ben Bernanke set a 2% target inflation rate, bringing the Fed in line with many of the world's other major central banks.[24] Until then, the Fed's policy committee, the Federal Open Market Committee (FOMC), did not have an explicit inflation target but regularly announced a desired target range for inflation (usually between 1.7% and 2%) measured by the personal consumption expenditures price index.

Prior to adoption of the target, some people argued that an inflation target would give the Fed too little flexibility to stabilise growth and/or employment in the event of an external economic shock. Another criticism was that an explicit target might turn central bankers into what Mervyn King, former Governor of the Bank of England, had in 1997 colorfully termed "inflation nutters"[25]—that is, central bankers who concentrate on the inflation target to the detriment of stable growth, employment, and/or exchange rates. King went on to help design the Bank's inflation targeting policy,[26] and asserts that the buffoonery has not actually happened, as did Chairman of the U.S. Federal Reserve Ben Bernanke, who stated in 2003 that all inflation targeting at the time was of a flexible variety, in theory and practice.[27]

Former Chairman Alan Greenspan, as well as other former FOMC members such as Alan Blinder, typically agreed with the benefits of inflation targeting, but were reluctant to accept the loss of freedom involved; Bernanke, however, was a well-known advocate.[28]

Theoretical questions

New classical macroeconomics and rational expectations hypothesis can explain how and why inflation targeting works. Expectations of firms (or the subjective probability distribution of outcomes) will be around the prediction of the theory itself (the objective probability distribution of those outcomes) for the same information set.[29] So, rational agents expect the most probable outcome to emerge. However, there is limited success at specifying the relevant model, and the full and perfect knowledge of a given macroeconomic system can be regarded as a comfortable presumption at best. Knowledge of the relevant model is not feasible, even if high-level econometrical techniques were accessible or adequate identification of the relevant explanatory variables were performed. So, estimation bias depends on the quantity and quality of information to which the modeller has access. In other words, estimations are asymptotically unbiased with respect to the exploited information.

Meanwhile, consistency can be interpreted similarly. On the basis of asymptotical unbiasedness, a moderated version of the rational expectations hypothesis can be suggested in which familiarity with the theoretical parameters is not a requirement for the relevant model. An agent with access to sufficiently vast, quality information and high-level methodological skills could specify its own quasi-relevant model describing a specific macroeconomic system. By increasing the amount of information processed, this agent could further reduce its bias. If this agent were also focal, such as a central bank, then other agents would likely accept the proposed model and adjust their expectations accordingly. In this way, individual expectations become unbiased as much as possible, albeit against a background of considerable passivity. According to some researches, this is the theoretical background of the functionality of inflation targeting regimes.[30]

Debate

There is some empirical evidence that inflation targeting does what its advocates claim, that is, making the outcomes, if not the process, of monetary policy more transparent.[31][32]

Benefits

Inflation targeting allows monetary policy to "focus on domestic considerations and to respond to shocks to the domestic economy", which is not possible under a fixed exchange-rate system. Also, investor uncertainty is reduced and therefore investors may more easily factor in likely interest rate changes into their investment decisions. Inflation expectations that are better anchored "allow monetary authorities to cut policy interest rates countercyclically".[33]

Transparency is another key benefit of inflation targeting. Central banks in developed countries that have successfully implemented inflation targeting tend to "maintain regular channels of communication with the public". For example, the Bank of England pioneered the "Inflation Report" in 1993, which outlines the bank's "views about the past and future performance of inflation and monetary policy".[34] Although it was not an inflation-targeting country until January 2012, up until then, the United States' "Statement on Longer-Run Goals and Monetary Policy Strategy" enumerated the benefits of clear communication—it "facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society".[35]

An explicit numerical inflation target increases a central bank's accountability, and thus it is less likely that the central bank falls prey to the time-inconsistency trap. This accountability is especially significant because even countries with weak institutions can build public support for an independent central bank. Institutional commitment can also insulate the bank from political pressure to undertake an overly expansionary monetary policy.[18]

An econometric analysis found that although inflation targeting results in higher economic growth, it does not necessarily guarantee stability based on their study of 36 emerging economies from 1979 to 2009.[36]

Shortcomings

Supporters of a nominal income target criticize the propensity of inflation targeting to neglect output shocks by focusing solely on the price level. Adherents of market monetarism, led by Scott Sumner, argue that in the United States, the Federal Reserve's mandate is to stabilize both output and the price level, and that consequently a nominal income target would better suit the Fed's mandate. Australian economist John Quiggin, who also endorses nominal income targeting, stated that it "would maintain or enhance the transparency associated with a system based on stated targets, while restoring the balance missing from a monetary policy based solely on the goal of price stability".[37] Quiggin blamed the late-2000s recession on inflation targeting in an economic environment in which low inflation is a "drag on growth". In reality, however, it is not true that inflation targeters focus solely on the rate of inflation and disregard economic growth: instead they tend to conduct "flexible inflation targeting" where the central bank strives to keep inflation near the target except time periods when such an effort would imply too much output volatility.[38][39]

Quiggin also criticized former Fed Chair Alan Greenspan and former European Central Bank President Jean-Claude Trichet for "ignor[ing] or even applaud[ing] the unsustainable bubbles in speculative real estate that produced the crisis, and to react[ing] too slowly as the evidence emerged".[37]

In a 2012 op-ed, University of Nottingham economist Mohammed Farhaan Iqbal suggested that inflation targeting "evidently passed away in September 2008", referencing the 2007–2012 global financial crisis. Frankel suggested "that central banks that had been relying on [inflation targeting] had not paid enough attention to asset-price bubbles", and also criticized inflation targeting for "inappropriate responses to supply shocks and terms-of-trade shocks". In turn, Iqbal suggested that nominal income targeting or product-price targeting would succeed inflation targeting as the dominant monetary policy regime.[40] The debate continues and many observers expect that inflation targeting will continue to be the dominant monetary policy regime, perhaps after certain modifications.[41]

Empirically, it is not so obvious that inflation targeters have better inflation control. Some economists argue that better institutions increase a country’s chances of successfully targeting inflation.[42] As regards the impact of the recent financial crisis, John Williams, a high-ranking Federal Reserve official, concludes that "when gauged by the behavior of inflation since the crisis, inflation targeting delivered on its promise".[43]

Choosing a positive, zero, or negative inflation target

Choosing a positive inflation target has at least two drawbacks.

  1. Over time, the compounded effect of small annual price increases will significantly reduce a currency's purchasing power. (For example, successfully hitting a target of +2% each year for 40 years would cause the price of a $100 basket of goods to rise to $220.80.) This drawback would be minimized or reversed by choosing a zero inflation target or a negative target.
  2. Vendors must expend resources more frequently to reprice their goods and services. This drawback would be minimized by choosing a zero inflation target.

However, policymakers feel the drawbacks are outweighed by the fact that a positive inflation target reduces the chance of an economy falling into a period of deflation.

Some economists argue that fear of deflation is unfounded, citing studies that show inflation is more likely than deflation to cause an economic contraction.[44][45] Andrew Atkeson and Patrick J. Kehoe wrote,

According to standard economic theory, deflation is the necessary consequence of optimal monetary policy. In 1969, Milton Friedman argued that under the optimal policy, the nominal interest rate should be zero and the price level should fall steadily at the real rate of interest. Since then, Friedman’s argument has been confirmed in a formal setting. (See, for example, V. V. Chari, Lawrence Christiano, and Patrick Kehoe 1996 and Harold Cole and Narayana Kocherlakota 1998.)[46]

Effectively, Friedman was arguing for a negative (moderately deflationary) inflation target.

Countries

Summary

There were 27 countries regarded by the Bank of England's Centre for Central Banking Studies as fully fledged inflation targeters at the beginning of 2012.[5] Other lists count 26 or 28 countries as of 2010.[47][48] Since then, the United States and Japan have also adopted inflation targets although the Federal Reserve, like the European Central Bank,[13] does not consider itself to be an inflation-targeting central bank.

Country Central bank Year adopted inflation targeting Notes
New Zealand Reserve Bank of New Zealand 12/1989[5] The pioneer; see Section 8: Reserve Bank of New Zealand Act of 1989.
Canada Bank of Canada 02/1991[5]
United Kingdom Bank of England 10/1992[5] First in Europe, although Germany had adopted many elements of inflation targeting earlier.[4]
Sweden Sveriges Riksbank 01/1993[5] The inflation target regime was announced in January 1993 and applied as of 1995.[5] The Riksbank had practiced price-level targeting since abandonment of the gold standard in 1931.
Australia Reserve Bank of Australia 06/1993[5][49]
Israel Bank of Israel 06/1997[5] Informally since 1992. Fully fledged inflation targeting from June 1997.[5][50]
Czech Republic Czech National Bank 12/1997[5][51] First in Central and Eastern Europe.
Poland National Bank of Poland 1998[5]
Brazil Brazilian Central Bank 06/1999[5]
Chile Central Bank of Chile 09/1999[5] At the end of 1990, a 20% inflation rate pushed the Central Bank of Chile to announce an inflation objective for the annual inflation rate for the year ending in December 1991.[18]
Colombia Banco de la República 10/1999[5]
South Africa South African Reserve Bank 02/2000[5]
Mexico Bank of Mexico 2001[5] Some sources say 1999.[52]
Norway Norges Bank 03/2001[5][53][54]
Iceland Central Bank of Iceland 03/2001[55]
Peru Central Reserve Bank of Peru 01/2002[5]
Philippines Bangko Sentral ng Pilipinas 01/2002[5][56]
Guatemala Bank of Guatemala 01/2005[5]
Indonesia Bank Indonesia 07/2005[5]
Romania National Bank of Romania 08/2005[5]
Armenia, Republic of Central Bank of Armenia 01/2006[5]
Turkey Türkiye Cumhuriyet Merkez Bankası 01/2006[5]
Ghana Bank of Ghana 05/2007[5] Informally in 2002, formally from May 2007.[5]
Georgia National Bank of Georgia 01/2009[57]
Serbia, Republic of National Bank of Serbia 01/2009[5]
United States Federal Reserve 01/2012[58]
Japan Bank of Japan 01/2013[59]
Russian Federation Central Bank of Russia 01/2014[60]
Republic of Kazakhstan National Bank of Republic of Kazakhstan 08/2015[61]
India Reserve Bank of India 08/2016[62] Decision taken after India had ~10% inflation rate for around 5 years.
Argentina Central Bank of Argentina 09/2016[63]

In addition, South Korea (Bank of Korea) and Iceland (Central Bank of Iceland) and others.[5]

Variations

Contrast to the usual inflation rate targeting, Laurence Ball proposed targeting on long-run inflation, targeting which takes the exchange rate into account and monetary conditions index targeting.[64] In his proposal, the monetary conditions index is a weighted average of the interest rate and exchange rate. It will be easy to put many other things into this monetary conditions index.

In the "constrained discretion" framework, inflation targeting combines two contradicting monetary policies—a rule-based approach and a discretionary approach—as a precise numerical target is given for inflation in the medium term and a response to economic shocks in the short term. Some inflation targeters associate this with more economic stability.[2][65]

See also

References

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  2. ^ a b Jahan, Sarwat. "Inflation Targeting: Holding the Line". International Monetary Funds, Finance & Development. Retrieved 28 December 2014.
  3. ^ Wikisource Fisher, Irving (1922). "Dollar Stabilization" . In Chisholm, Hugh. Encyclopædia Britannica (12th ed.). London & New York.
  4. ^ a b c d e "Inflation Targeting Has Been A Successful Monetary Policy Strategy". NBER. Retrieved 31 October 2016.
  5. ^ a b c d e f g h i j k l m n o p q r s t u v w x y z aa ab ac ad ae "State of the art of inflation targeting" (PDF). Bank of England – Centre for Central Banking Studies. 2012: 17, 18–44.
  6. ^ Andrew G. Haldane (1995). Targeting Inflation: A Conference of Central Banks on the Use of Inflation Targets Organised by the Bank of England, 9-10 March 1995. London: Bank of England. ISBN 9781857300734.
  7. ^ a b "Targeting Inflation: The United Kingdom in Retrospect" (PDF). IMF. Retrieved 31 October 2016.
  8. ^ "Key Monetary Policy Dates Since 1990". Bank of England. Archived from the original on 29 June 2007. Retrieved 20 September 2007.
  9. ^ "Remit of the Monetary Policy Committee of the Bank of England and the New Inflation Target" (PDF). HM Treasury. 10 December 2003. Archived (PDF) from the original on 26 September 2007. Retrieved 20 September 2007.
  10. ^ "Monetary Policy Framework". Bank of England. Retrieved 31 October 2016.
  11. ^ "CCBS Lecture Series - Inflation Targeting: The British Experience". Bank of England. January 1999. Retrieved 31 October 2016.
  12. ^ "Inflation targeting is 25 years old, but has it worked?". BBC. 11 March 2015. Retrieved 31 October 2016; "Why do we target 2pc inflation? (And does it matter if we keep missing it?)". The Telegraph. 16 June 2015. Retrieved 31 October 2016.
  13. ^ a b Governor Laurence H. Meyer (17 July 2001). "Inflation Targets and Inflation Targeting". The Federal Reserve Board. Retrieved 1 December 2016.
  14. ^ wikisource consolidation
  15. ^ a b THE EUROPEAN CENTRAL BANK HISTORY, ROLE AND FUNCTIONS BY HANSPETER K. SCHELLER SECOND REVISED EDITION 2006, ISBN 92-899-0022-9 (print) ISBN 92-899-0027-X (online) page 81 at the pdf online version
  16. ^ "Powers and responsibilities of the European Central Bank". European Central Bank. Archived from the original on 16 December 2008. Retrieved 10 March 2009.
  17. ^ Noyer, Christian (12 January 2016). "Thoughts on the zero lower bound in relation with monetary and financial stability". Bank for International Settlements. Retrieved 18 January 2016.
  18. ^ a b c d Mishkin, Frederic S. (2000). "Inflation Targeting in Emerging-Market Countries". American Economic Review. 90 (2): 105–109. doi:10.1257/aer.90.2.105.
  19. ^ See the Czech National Bank's website
  20. ^ N. Nergiz Dincer and Barry Eichengreen (2014): "Central Bank Transparency and Independence: Updates and New Measures", International Journal of Central Banking, March 2014, pp. 189-253.
  21. ^ Ali Alichi, Jaromir Benes, Joshua Felman, Irene Feng, Charles Freedman, Douglas Laxton, Evan Tanner, David Vavra, and Hou Wang (2015): "Frontiers of Monetary Policymaking: Adding the Exchange Rate as a Tool to Combat Deflationary Risks in the Czech Republic", International Monetary Fund, Working Paper No. 15/74.
  22. ^ Michal Franta, Tomas Holub, Petr Kral, Ivana Kubicova, Katerina Smidkova, Borek Vasicek (2014): "The Exchange Rate as an Instrument at Zero Interest Rates: The Case of the Czech Republic", Czech National Bank, Research and Policy Note No. 3/2014.
  23. ^ Skorepa, M., and Hampl, M. (2014): "Evolution of the Czech National Bank’s holdings of foreign exchange reserves", BIS Papers No. 78, pp. 159-169.
  24. ^ "Why does the Federal Reserve aim for 2 percent inflation over time?". The Board of Governors of the Federal Reserve System. Retrieved 8 March 2015.
  25. ^ As quoted on page 158 of Poole, W. (2006), "Inflation targeting", speech delivered to Junior Achievement of Arkansas, Inc., Little Rock, Arkansas, 16 February 2006. Published in Federal Reserve Bank of St. Louis Review, vol. 88, no. 3 (May–June 2006), pp. 155-164.
  26. ^ Fraher, John (2008-06-05). "King May Be More Irritant Than Ally for Brown at BOE". Bloomberg Exclusive. Retrieved 2008-08-05.
  27. ^ Bernanke, Ben S. (25 March 2003). A Perspective on Inflation Targeting. Annual Washington Policy Conference of the National Association of Business Economists. Washington, D.C.
  28. ^ Ben S. Bernanke and Frederic S. Mishkin, (1997), "Inflation targeting: a new framework for monetary policy?", The Journal of Economic Perspectives, vol. 11, no. 2 (Spring 1997), pp. 97-116.
  29. ^ Muth, John F. (1961). "Rational Expectations and the Theory of Price Movements". Econometrica. 29 (3): 315–335. JSTOR 1909635.
  30. ^ Galbács, Peter (2015). "The Rational Expectations Hypothesis as a Key Element of New Classical Macroeconomics". The Theory of New Classical Macroeconomics. A Positive Critique. Contributions to Economics. Heidelberg/New York/Dordrecht/London: Springer. pp. 53–90. doi:10.1007/978-3-319-17578-2. ISBN 978-3-319-17578-2.
  31. ^ Bernank, Ben S.; Laubach, Thomas; Mishkin, Frederic S.; Posen, Adam S. (2001). Inflation targeting: lessons from the international experience. Princeton Univ. Press. ISBN 9780691086897.
  32. ^ John C. Williams , President and CEO , Federal Reserve Bank of San Francisco (31 October 2014). "Inflation Targeting and the Global Financial Crisis: Successes and Challenges". Federal Reserve Board of San Francisco. Retrieved 1 December 2016.CS1 maint: Multiple names: authors list (link)
  33. ^ Maurice Obstfeld (2014). "Never Say Never: Commentary on a Policymaker's Reflections". IMF Economic Review. 62 (4): 656–693.
  34. ^ "Inflation Report". Bank of England. Retrieved 20 January 2016.
  35. ^ Janet L. Yellen (24 February 2015). Monetary Policy Report (PDF). Washington, D.C.: Board of Governors of the Federal Reserve System.
  36. ^ Amira, Beldi; Mouldi, Djelassi; Feridun, Mete (2012). "Growth effects of inflation targeting revisited: empirical evidence from emerging markets". Applied Economics Letters. 20 (6): 587–591. doi:10.1080/13504851.2012.718054.
  37. ^ a b Quiggin, John (2012-01-26). "Inflation target tyranny". Retrieved 2012-01-28.
  38. ^ Svensson, Lars (21 September 2009). "Flexible inflation targeting – lessons from the financial crisis" (PDF). speech at the workshop “Towards a new framework for monetary policy? Lessons from the crisis”, organized by the Netherlands Bank, Amsterdam.
  39. ^ "BoJ to pursue inflation target 'flexibly'". Financial Times. 11 April 2013. Retrieved 20 January 2016.
  40. ^ Frankel, Jeffrey (16 May 2012). "The Death of Inflation Targeting". Project Syndicate.
  41. ^ Lucrezia Reichlin and Richard Baldwin, eds. (2013), "Is Inflation Targeting Dead? Central Banking After the Crisis", Centre for Economic Policy Research (CEPR)
  42. ^ Haizhou Huang; Shang-Jin Wei (September 2006). "Monetary Policies for Developing Countries: The Role of Institutional Quality". Journal of International Economics. 70: 239–52. doi:10.1016/j.jinteco.2005.09.001.
  43. ^ John C. Williams, (2014), "Inflation Targeting and the Global Financial Crisis: Successes and Challenges", Essay presentation to the South African Reserve Bank Conference on Fourteen Years of Inflation Targeting in South Africa and the Challenge of a Changing Mandate, Pretoria, South Africa
  44. ^ Herbener, Jeffrey. "Written Testimony before the Subcommittee on Domestic Monetary Policy and Technology" (PDF). U.S. House of Representatives Financial Services Committee. Retrieved 22 October 2016.
  45. ^ "Should We Fear Deflation?". Retrieved 22 October 2016.
  46. ^ Atkeson, Andrew; Kehoe, Patrick J. (2004). "Deflation and Depression: Is There an Empirical Link?" (PDF). American Economic Review. 94 (2): 99–103. doi:10.1257/0002828041301588.
  47. ^ Jahan, Sarwat (28 March 2012). "Inflation Targeting: Holding the Line". IMF. Retrieved 18 January 2016.
  48. ^ Roger, Scott (March 2010). "Inflation Targeting Turns 20". Finance & Development. 47 (1). Retrieved 18 January 2016.
  49. ^ "Speech: Talk by Governor". 1993-08-04.
  50. ^ Leiderman, Leonardo (1 May 2000). "Monetary Policy Rules and Transmission Mechanisms Under Inflation Targeting in Israel" (PDF). Documentos de Trabajo (Banco Central de Chile). Retrieved 2009-10-18.
  51. ^ Singer, M. (2015): "From a Peg to Inflation Targeting: CNB Experience", presentation at the High-level Seminar on the Benefits of Adopting a Structured Approach to Policy Analysis, Rabat, Morocco, 21 May 2015
  52. ^ Galindo, Luis Miguel (13 May 2005). "Alternatives to inflation targeting in Mexico" (PDF) (Amherst/CEDES Conference on Inflation targeting, Buenos Aires). Retrieved October 2009. Check date values in: |accessdate= (help)
  53. ^ Marit Tronier Halvorsen (26 September 2013). "Norges Bank holder fast ved inflasjonsmålet". Dagens Næringsliv (in Norwegian).
  54. ^ "Forsiden". 2019-02-02.
  55. ^ Cite error: The named reference https://www.cb.is/monetary-policy/inflation-target/ was invoked but never defined (see the help page).
  56. ^ Rocel C. Felix (2 January 2002). "BSP adopts inflation targeting starting this year". The Philippine Star.
  57. ^ "National Bank Of Georgia". www.nbg.gov.ge. Retrieved 2018-01-03.
  58. ^ "In historic shift, Fed sets inflation target". Reuters. 26 January 2012. Retrieved 18 January 2016.
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  60. ^ https://cbr.ru/eng/publ/ddcp/2014_01_ddcp_e.pdf
  61. ^ http://nationalbank.kz/?docid=3326&switch=english
  62. ^ "India adopts inflation target of 4% for next five years under monetary policy framework".
  63. ^ "Inflation Targeting Regime in Argentina. Press conference".
  64. ^ "Policy Rules for Open Economies" Archived 17 September 2009 at the Wayback Machine
  65. ^ "Inflation-Targeting, Flexible Exchange Rates and Macroeconomic Performance since the Great Recession" (PDF). The Centre for European Policy Studies. March 2014. Retrieved 28 December 2014.

External links

Central Bank of Chile

The Central Bank of Chile (Spanish: Banco Central de Chile) is the central bank of Chile. It was originally created in 1925 and is incorporated into the current Chilean Constitution as an autonomous institution of constitutional rank. Its monetary policy is currently guided by an inflation targeting regime.

Central Bank of the Republic of Turkey

The Central Bank of the Republic of Turkey, CBRT (Turkish: Türkiye Cumhuriyet Merkez Bankası, TCMB) is the central bank of Turkey and is founded as a joint stock company on 11 June 1930.

Shares of the CBRT are divided into four classes. Class A shares belong solely to the Turkish Treasury. Class B and Class C shares are allocated to national banks operating in Turkey, banks other than national banks and privileged companies. Finally, Class D shares are allocated to Turkish commercial institutions and to real and legal persons of Turkish nationality.

The CBRT determines, at its own discretion, the monetary policy to pursue and the policy instruments to use in achieving price stability in Turkey. This implies that the CBRT enjoys instrument independence. In order to attain its objective of price stability, the CBRT has implemented a full-fledged inflation targeting regime since 2006.The preparations to establish a central bank of Turkey began in 1926, but the organization was established on 3 October 1931 and opened officially on 1 January 1932. The Bank had, originally, a privilege of issuing banknotes for a period of 30 years. In 1955, this privilege was extended until 1999. Finally it was prolonged indefinitely in 1994.

Economy of Canada

The economy of Canada is a highly developed mixed economy with 10th largest GDP by nominal and 16th largest GDP by PPP in the world. As with other developed nations, the country's economy is dominated by the service industry, which employs about three quarters of Canadians. Canada has the fourth highest total estimated value of natural resources, valued at US$33.2 trillion in 2016. It has the world's third largest proven petroleum reserves and is the fourth largest exporter of petroleum. It is also the fourth largest exporter of natural gas. Canada is considered an "energy superpower" due to its abundant natural resources and small population.Canada is unusual among developed countries in the importance of the primary sector, with the logging and oil industries being two of Canada's most important. Canada also has a sizable manufacturing sector, based in Central Canada, with the automobile industry and aircraft industry being especially important. With the world's longest coastline, Canada has the 8th largest commercial fishing and seafood industry in the world. Canada is one of the global leaders of the entertainment software industry. It is a member of the APEC, NAFTA, G7, G20, OECD and WTO.

Fear of floating

Fear of floating refers to situations where a country prefers a fixed exchange rate to a floating exchange rate regime. This is more relevant in emerging economies, especially when they suffered from financial crisis in last two decades. In foreign exchange markets of the emerging market economies, there is evidence showing that countries who claim they are floating their currency, are actually reluctant to let the nominal exchange rate fluctuate in response to macroeconomic shocks. In the literature, this is first convincingly documented by Calvo and Reinhart with "fear of floating" as the title of one of their papers in 2000. Since then, this widespread phenomenon of reluctance to adjust exchange rates in emerging markets is usually called "fear of floating". Most of the studies on "fear of floating" are closely related to literature on costs and benefits of different exchange rate regimes.

Federal Open Market Committee

The Federal Open Market Committee (FOMC), a committee within the Federal Reserve System (the Fed), is charged under United States law with overseeing the nation's open market operations (e.g., the Fed's buying and selling of United States Treasury securities). This Federal Reserve committee makes key decisions about interest rates and the growth of the United States money supply.The FOMC is the principal organ of United States national monetary policy. The Committee sets monetary policy by specifying the short-term objective for the Fed's open market operations, which is usually a target level for the federal funds rate (the rate that commercial banks charge between themselves for overnight loans).

The FOMC also directs operations undertaken by the Federal Reserve System in foreign exchange markets, although any intervention in foreign exchange markets is coordinated with the U.S. Treasury, which has responsibility for formulating U.S. policies regarding the exchange value of the dollar.

Gonzalo García Núñez

Gonzalo García Núñez (born February 16, 1947) is a Peruvian industrial engineer from the Peruvian University of Ingenieria, Lima 1968, Graduate of the French center of economics programs CEPE, Phd. in economics from Grenoble University, he is a professor, banker, entrepreneur, economist and politician. Full Professor of Macroeconomics and industrial organisation of the Peruvian University of Engineering, he was elected General Secretary, President of the chapter of industrial and economics engineers, President of the Society of Professors of the University of engineering, secretary and chairman of the faculty of systems engineers and President of the national engineer institution of Peru, the Colegio de Ingenieros del Peru. With the Izquierda Unida party in 1983 he was elected counsellor of the Mayor of Lima, reelected in 1986 and he was candidate to the high chamber of representatives in 1990, by Izquierda Socialista. He was an opponent of former President Alberto Fujimori in the Foro Democratico ngo. He was elected Central Bank director by an absolute majority of the Peruvian congress in 2001. Member of "Justice and Liberty" he was invited by Ollanta Humala, the candidate of the Peruvian Nationalist Party and he ran as Ollanta Humala's first Vice President during the 2006 national election on the coalition between Union for PeruPeruvian Nationalist Party. The ticket won in the first round of voting with 31 per cent of the total vote but lost in the second round (47.6%). Gonzalo Garcia was responsible of the large team of government planning of the ticket, editor of the plan named The Great Transformation, in honour of Karl Polanyi, and native name Llapanckik in Quechua.García was formerly a member of the board of the Central Reserve Bank of Peru. In this period the inflation was 2 per cent average between 2001 and 2006, the exchange rate was very stable and the international reserves growth at the high level of the economic history of Peru. The board approved the inflation targeting rule in December 2001, proposed by experts of the bank, and ran the monetary policy with a very complex model of mathematical prevision and forecasts during the recent five years. He also served in the UN system and he is the author of the vision of Peruvian marginalized people and The Net of production system of Villa El Salvador, a shanty town of Lima. Since 1982 he has written editorials for La Republica, one of Peru's greatest newspapers. In November 2006, invited by Ollanta and his allies, Gonzalo García was a candidate only of the Ollanta party and could not be elected mayor of Lima.

Indexed unit of account

When a daily indexed unit of account or Daily Consumer Price Index (Daily CPI) or monetized daily indexed unit of account is used in contracts or in the Capital Maintenance in Units of Constant Purchasing Power accounting model, deferred payments and constant real value non-monetary items are indexed to the general price level in terms of a Daily Index such that changes in the inflation rate—in the case of monetary items—and the stable measuring unit assumption—in the case of constant real value non-monetary items—have no effect on the real value of these items. Non-indexed units, such as contracts written in nominal currency units and nominal monetary items, incur inflation or deflation risk in the case of monetary items. During all periods of inflation (low, high or hyperinflation), the debtor pays less in real terms than what both the debtor and creditor agreed at the original time of the contract/sale. On the other hand, in periods of deflation, the debtor pays more in real terms than the original agreed value. The opposite is true for creditors. Contracts and constant real value non-monetary items accounted in daily indexed units of account, Daily CPI or monetized daily indexed units of account incur no inflation or deflation risk, as the real value of payments and outstanding capital amounts remain constant over time while the nominal values are inflation- or deflation-indexed daily.

Indexation is typically achieved by adjusting payments and outstanding capital as well as interest values using a Daily consumer price index or a monetized daily indexed unit of account. A monetized daily indexed unit of account, called the Unidad de Fomento was introduced in Chile in 1967, but it was only in the early 1980s that it was widely adopted by both the Chilean people and the Chilean government. Its original base value has never been changed. By 1983, over 60 percent of total bank loans in Chile were written in the UF. which eliminated the effect of inflation during inflation. The value of the UF in pesos is published daily in all major Chilean newspapers and on government websites. Initial doubts about the Chilean governments ability to adopt inflation targeting under such an indexed financial system proved unfounded as the Bank of Chile has successfully maintained low inflation rates since 1998.

In 1848, John Stuart Mill discussed the inflation risk of non-indexed units of accounts. He stated that "All variations in the value of the circulating medium are mischievous: they disturb existing contracts and expectations, and the liability to such changes renders every pecuniary engagement of long date entirely precarious." In 1887 William Stanley Jevons referred to previous authors and discussed an indexed unit of account which he calls a "tabular standard of value". In 1887 Alfred Marshall, also referring to previous authors, discussed a similar proposal. In 1998 and onwards, Robert Shiller similarly argued for the introduction of an indexed unit of account into the United States economy as a means of eliminating inflation risk.

James B. Bullard

James Brian Bullard is the chief executive officer and 12th president of the Federal Reserve Bank of St. Louis, positions he has held since 2008. He is currently serving a term that began on March 1, 2016. In 2014, he was named the 7th most influential economist in the world.

List of countries by exchange rate regime

This is a list of countries by their exchange rate regime.

Malcolm Knight

Malcolm D. Knight is a Canadian economist, policymaker and banker. He is currently Visiting Professor of Finance at the London School of Economics and Political Science and a Distinguished Fellow at the Center for International Governance Innovation. From 2008 to 2012, Knight was Vice Chairman of Deutsche Bank Group where he was responsible for developing and coordinating the bank's global approach to issues in financial regulation, supervision, and financial stability. He served as General Manager of the Bank for International Settlements from 2003 to 2008 and as Senior Deputy Governor of the Bank of Canada (1999-2003), after holding senior positions at the International Monetary Fund (1975-1999).

Michael Dean Woodford

Michael Dean Woodford (born 1955) is an American macroeconomist and monetary theorist who currently teaches at Columbia University.

Monetary authority

In finance and economics, a monetary authority is the entity which controls the money supply of a given currency, often with the objective of controlling inflation or interest rates. With its monetary tools, a monetary authority is able to effectively influence the development of the short-term interest rates for that currency, but can also influence other parameters which control the cost and availability of money.Generally, a monetary authority is a central bank with a certain degree of independence from the government(s) and its political targets and decisions. But depending on the political set-up, governments can have as much as a de facto control over monetary policy if they are allowed to influence or control their central bank.

Commonly, there is one monetary authority for one country with its currency. However, there are also other arrangements in place, such as in the case of the eurozone where the so-called Eurosystem, consisting of the European Central Bank and the 19 European Union member states that have adopted the euro as their sole official currency, is the monetary authority covering the eurozone.

There are other arrangements, for example democratic governance of monetary policy, a currency board which restricts currency issuance to the amount of another currency, and free banking where a broad range of entities (such as banks) can issue notes or coin.

Monetary inflation

Monetary inflation is a sustained increase in the money supply of a country (or currency area). Depending on many factors, especially public expectations, the fundamental state and development of the economy, and the transmission mechanism, it is likely to result in price inflation, which is usually just called "inflation", which is a rise in the general level of prices of goods and services.There is general agreement among economists that there is a causal relationship between monetary inflation and price inflation. But there is neither a common view about the exact theoretical mechanisms and relationships, nor about how to accurately measure it. This relationship is also constantly changing, within a larger complex economic system. So there is a great deal of debate on the issues involved, such as how to measure the monetary base and price inflation, how to measure the effect of public expectations, how to judge the effect of financial innovations on the transmission mechanisms, and how much factors like the velocity of money affect the relationship. Thus there are different views on what could be the best targets and tools in monetary policy.

However, there is a general consensus on the importance and responsibility of central banks and monetary authorities in setting public expectations of price inflation and in trying to control it.

Keynesian economists believe the central bank can sufficiently assess the detailed economic variables and circumstances in real time to adjust monetary policy in order to stabilize gross domestic product. These economists favor monetary policies that attempt to even out the ups and downs of business cycles and economic shocks in a precise fashion.

Followers of the monetarist school think that Keynesian style monetary policies produce a lot of overshooting, time-lag errors and other unwanted effects, usually making things even worse. They doubt the central bank's capacity to analyse economic problems in real time and its ability to influence the economy with correct timing and the right monetary policy measures. So monetarists advocate a less intrusive and less complex monetary policy, specifically a constant growth rate of the money supply.

Some followers of Austrian School economics advocate either the return to free markets in money, called free banking, or a 100% gold standard and the abolition of central banks.Currently, most central banks follow a monetarist or Keynesian approach, or more often a mix of both. There is a trend of central banks towards the use of inflation targeting.

Monetary policy

Monetary policy is the process by which the monetary authority of a country, typically the central bank or currency board, controls either the cost of very short-term borrowing or the money supply, often targeting an inflation rate or interest rate to ensure price stability and general trust in the currency.Further goals of a monetary policy are usually to contribute to the stability of gross domestic product, to achieve and maintain low unemployment, and to maintain predictable exchange rates with other currencies.

Monetary economics provides insight into how to craft an optimal monetary policy. In developed countries, monetary policy has generally been formed separately from fiscal policy, which refers to taxation, government spending, and associated borrowing.Monetary policy is referred to as being either expansionary or contractionary. Expansionary policy occurs when a monetary authority uses its tools to stimulate the economy. An expansionary policy maintains short-term interest rates at a lower than usual rate or increases the total supply of money in the economy more rapidly than usual. It is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that less expensive credit will entice businesses into expanding. This increases aggregate demand (the overall demand for all goods and services in an economy), which boosts short-term growth as measured by gross domestic product (GDP) growth. Expansionary monetary policy usually diminishes the value of the currency relative to other currencies (the exchange rate).The opposite of expansionary monetary policy is contractionary monetary policy, which maintains short-term interest rates higher than usual or which slows the rate of growth in the money supply or even shrinks it. This slows short-term economic growth and lessens inflation. Contractionary monetary policy can lead to increased unemployment and depressed borrowing and spending by consumers and businesses, which can eventually result in an economic recession if implemented too vigorously.

Monetary policy of the Philippines

Monetary policy is the monitoring and control of money supply by a central bank, such as the Federal Reserve Board in the United States of America, and the Bangko Sentral ng Pilipinas in the Philippines. This is used by the government to be able to control inflation, and stabilize currency. Monetary Policy is considered to be one of the two ways that the government can influence the economy – the other one being Fiscal Policy (which makes use of government spending, and taxes). Monetary Policy is generally the process by which the central bank, or government controls the supply and availability of money, the cost of money, and the rate of interest.

Positive non-interventionism

Positive non-interventionism was the economic policy of Hong Kong; this policy can be traced back to the time when Hong Kong was under British rule. It was first officially implemented in 1971 by Financial Secretary of Hong Kong John Cowperthwaite, who observed that the economy was doing well in the absence of government intervention but it was important to create the regulatory and physical infrastructure to facilitate market-based decision making. The policy was continued by subsequent Financial Secretaries, including Sir Philip Haddon-Cave. Economist Milton Friedman has cited it as a fairly comprehensive implementation of laissez-faire policy, although Haddon-Cave has stated that the description of Hong Kong as a laissez-faire society was "frequent but inadequate".

Rania Al-Mashat

Rania A. Al-Mashat (born 20 June 1975) is an Egyptian economist and politician who has been the country's Minister of Tourism since 2018. She previously held high level positions at the International Monetary Fund in Washington DC and at the Central Bank of Egypt.

Targeting

Targeting is to make a thing or group of things a target, to select it or them to be acted upon.

in Biology

Gene targeting, in genetics

Protein targeting, is cell biology, is the mechanism by which a protein is transported to its proper destination

in Geography

Geographic targeting, in geography

in Marketing

Targeted advertising, to select a demographic or other group of people to advertise to, and create advertisements appropriately

Geo targeting, in internet marketing

Behavioral targeting

Inflation targeting, in economics

Targeting (gridiron football), a penalty

Targeting (warfare), to select objects or installations to be attacked, taken, or destroyed

Targeting (politics), to determine where to spend the resources of time, money, manpower and attention when campaigning for election

Targeting pod, in warfare

Targeting tower, a radio frequency antenna

Target market (Management)

Tigran Sargsyan

Tigran Sargsyan (Armenian: Տիգրան Սուրենի Սարգսյան, born 29 January 1962) is an Armenian political figure who was Prime Minister of Armenia from 2008 to 2014. Previously he was Chairman of the Central Bank of Armenia from 1998 to 2008. After leaving office as Prime Minister, he served as Ambassador to the United States from 2014 to 2016, and he has been Chairman of the board of the Eurasian Economic Commission since 2016.

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