Inflation Targeting

Overview

Truman (a former assistant secretary of the Treasury for international affairs during the Clinton presidency) promotes inflation targeting as a sound framework for conducting monetary policy through central banks. Inflation targeting, in his formulation, consists of an emphasis on price stability, numerical targeting of prices, time horizons for reaching targets, and ongoing review of targeting. He optimistically discusses the implications of wide-scale adoption of inflation targeting and the structure and ...
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Overview

Truman (a former assistant secretary of the Treasury for international affairs during the Clinton presidency) promotes inflation targeting as a sound framework for conducting monetary policy through central banks. Inflation targeting, in his formulation, consists of an emphasis on price stability, numerical targeting of prices, time horizons for reaching targets, and ongoing review of targeting. He optimistically discusses the implications of wide-scale adoption of inflation targeting and the structure and functioning of the international financial system. Annotation ©2004 Book News, Inc., Portland, OR
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Editorial Reviews

Foreign Affairs
A century ago, national currencies were linked to gold or silver. Starting in the 1930s, they were linked to major currencies, a practice formalized in 1944 at Bretton Woods. That system broke down in 1973, and ever since countries have floundered looking for a new "anchor" for monetary policy. The U.S. answer has been to appoint a committee of experienced individuals to manage the monetary aspects of the national economy. But that solution is not satisfying to some and, in any case, cannot work in countries with a history of monetary turbulence or a corrupt political culture. Since 1989, 22 countries have instead focused on targeting the domestic rate of inflation. Truman, a former official of the Federal Reserve, reviews the basic arguments for and against this kind of inflation-targeting and evaluates economic performance under such a system. He offers much useful discussion of the formulation of monetary policy by various central banks and how inflation influences the process. Truman emerges sympathetic to (but unenthusiastic about) inflation-targeting as a strategy.
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Product Details

  • ISBN-13: 9780881323450
  • Publisher: Peterson Institute for International Economics
  • Publication date: 10/27/2003
  • Edition description: New Edition
  • Pages: 288
  • Product dimensions: 5.90 (w) x 8.90 (h) x 0.60 (d)

Table of Contents

Preface xiii
Acknowledgments xv
1 What Is the Fuss All About? 1
What Is Inflation Targeting? 5
What Are the Issues? 8
Plan of the Book 11
Appendix 1.1 Monetary Policy Regimes 13
2 Attraction of Inflation Targeting 17
Intellectual Origins 17
Choosing an Inflation-Targeting Framework 38
3 Inflating Targeting in Practice 47
Necessary Preconditions 48
What the Skeptics Say 55
The Framework in Practice: Four Principal Elements 60
Actual and Potential Inflation Targeters 67
Empirical Investigations 71
Conclusion 96
4 Inflation Targeting and the Group of Three 99
Individual Adoption 100
Joint Adoption 159
5 Exchange Rate Regimes, Policies, and Practices 165
Performance of Exchange Rates under Inflation Targeting 167
Inflation Targeting and Exchange Rate Regimes 177
Inflation Targeting and Exchange Market Operations 181
The "Fear of Flating" 185
Conclusions 189
6 International Financial Architecture 191
Prevention and Management of Crises 191
IMF Adjustment Programs 196
Conclusions 203
7 Challenges and Opportunities 205
Inflation Targeting by the G3 209
Is Inflation Targeting Broadly Applicable? 211
Implications for Exchange Rate Policies 213
Implications for the International Financial Architecture 214
Recommendations 215
Concluding Thoughts 216
Appendix 219
References 237
Index 255
Tables
Table 2.1 Average rates of CPI inflation and growth rates of real GDP, 1990-2002 21
Table 2.2 Inflation variability and inflation in industrial countries over three decades 24
Table 2.3 Countries with inflation-targeting monetary policy frameworks 29
Table 2.4 Factors associated with a country's choice of inflation targeting 40
Table 3.1 Overview of inflation-targeting frameworks 61
Table 3.2 Evaluation in inflation-targeting frameworks 67
Table 3.3 Categorization of inflation targeters, based on inflation rates 69
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