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Inflation Targeting
     

Inflation Targeting

by Edwin M. M. Truman
 

This study reviews the literature on the contribution of low inflation to economic growth and the subsequent widespread adoption of inflation targeting as a monetary policy framework. Edwin Truman addresses the challenges and risks associated with such a framework. Building on these foundations, the study focuses on two major international economic policy

Overview

This study reviews the literature on the contribution of low inflation to economic growth and the subsequent widespread adoption of inflation targeting as a monetary policy framework. Edwin Truman addresses the challenges and risks associated with such a framework. Building on these foundations, the study focuses on two major international economic policy issues: (1) the implications of differing national regimes of inflation targeting for international economic policy cooperation; and (2) the adoption of inflation targeting by emerging-market economies which often lack stable monetary policy environments and credible policy authorities—a situation which, among other things, can complicate the use of the inflation targeting framework as the basis for IMF-supported stabilization programs.

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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.

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)

Meet the Author

Edwin M. Truman, nonresident senior fellow since July 2013, joined the Peterson Institute for International Economics as senior fellow in 2001. Previously he served as assistant secretary of the US Treasury for International Affairs from December 1998 to January 2001 and returned as counselor to the secretary March–May 2009. He directed the Division of International Finance of the Board of Governors of the Federal Reserve System from 1977 to 1998. From 1983 to 1998, he was one of three economists on the staff of the Federal Open Market Committee.

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