The rationale for inflation targeting and the ingredients of an inflation-targeting policy are reviewed briefly in the following two sections.(2) There has, however, been relatively less emphasis placed on comparative assessments of inflation performance under inflation targeting among the group of countries that have formally adopted the policy.
An inflation target can enhance central bank credibility in many ways.
An implication of this is that some notion of medium-term inflation objectives must play an important role in monetary policy formulation.
It covers, first, the question of whether or not the optimal rate of inflation may be higher than zero; second, the costs of inflation and transitional issues involved with the costs of inflation reduction; and third, possible biases in the measurement of inflation which may need to be allowed for when formulating longer-run inflation goals.
Classical economics postulates that money is neutral: changes in nominal variables, such as inflation, do not affect real output.
I show that staggered adjustment in theory should not impede the response of inflation to such a policy.
While the disinflationary trend is evident across a range of inflation
measures, the strength of that trend differs depending on which one you're looking at.
It is usually said that inflation
hurts poor more than rich.
Various theories have been proposed to explain the Phillips curve and most of these theories agree that there is no significant long-term tradeoff between inflation
and the level of economic activity.
These two discoveries led others to suggest a connection between inflation
, financial intermediaries, and economic growth.
Hence, if Greenspan does succeed in reducing inflation
to zero, it will not be the result of his personal magnetism, but simply a sign that the current inflationary cycle has run its course, and inevitably a happy age of price stability is to follow.
This definition is conceptually sound because inflation
is at least as much a state of mind as it is a statistic.