Title: Inflation Targeting and Its Policy Implication and Application
Abstract: Inflation Targeting as a monetary policy framework has been adopted by both developed and emerging countries in recent decade. This paper first reviews the policy credibility problem arising form time inconsistency problem, and the rule versus discretion distinction, as well as the role of nominal anchor. It then identifies inflation targeting as constrained discretion and the preconditions and technical details of established inflation-targeting framework. It concludes that China should avoid the conflict between monetary policy and exchange rate policy, enhance central bank independence and forecast capacity, deal with inflation bias as a result of LOLR as well as establish core inflation prior to adopting inflation targeting as a monetary policy strategy.
Publication Year: 2006
Publication Date: 2006-01-01
Language: en
Type: article
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