Monetary Policy under Flexible Exchange Rates: An Introduction to Inflation Targeting [book]

Pierre-Richard Agénor
1999 Policy Research Working Papers  
This paper provides an introduction to inflation targeting, with a particular emphasis on analytical issues and the recent experience of developing countries. After presenting a formal framework, it discusses basic requirements for inflation targeting and how such a regime differs from money and exchange rate targeting regimes. The operational framework of inflation targeting (including the price index to monitor, the target horizon, forecasting procedures, and the role of asset prices) is then
more » ... discussed. Next, recent experiences with inflation targets are examined. The last part of the paper focuses on some current research issues in the literature, including the role of nonlinearities (regarding both policy preferences and the slope of the output-inflation tradeoff), uncertainty (about behavioral parameters and transmission lags), and the treatment of credibility in empirical models of inflation. New evidence on the convexity of the Phillips curve is also provided for six developing countries. JEL Classification Numbers: E44, F32, F34. * I would like to thank, without implication, Esteban Jadresic, Brian Kahn, and Murat Ucer for useful comments on an earlier draft, and Nihal Bayraktar for excellent research assistance. The views expressed in this paper do not necessarily represent those of the Bank.
doi:10.1596/1813-9450-2511 fatcat:hutwtcsxxbbffjtr62lg2vlcvu