Direct Inflation Targeting
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One of the identifying characteristics of Direct Inflation Targeting (DIT) is that it does not use an intermediate target (it is a monetary targets, either monetary growth or interest rates). The countries like New Zealand and Canada adopt DIT with exchange rate targeting (pegging).
Countries adopted Direct Inflation Targeting
Some of the leading countries adopted direct inflation targeting are New Zealand in 1989, Finland in 1993,United Kingdom in1992, Sweden in 1993, Australia in 1994,Spain 1994, Israel in 1994, and Canada in1991.
Impact of DIT in Czech Republic: A study
One study about the impact of direct inflation targeting (DIT) on monetary policy in Czech Republic reveals that at short maturities, the coefficients for changes in the official interest rate became lower in the DIT period, which was comparatively higher in the pre-crisis period. It has also observed that the bond yields and swap rates of interest rate with maturities of five years and longer did not respond in a significant way to official interest rate decisions in the Direct Inflation Targeting period.
Common features of the DIT countries
For the last couple of years, it has been observed, that the countries ( like New Zealand and Canada) adopted DIT (Direct Inflation Targeting), showed a relatively poor inflation record than other industrial countries like Germany, Switzerland, Japan and even the USA. Although the USA, never adopted inflation targeting. The DIT countries generally target on stressing price stability in the country.
One of the vital reasons behind adopting direct inflation targeting is that use of intermediate targets did not succeed in getting inflation down to targeted levels. That is why policymakers considered direct inflation targeting strategy as the better one. Direct inflation targeting is a logical choice for achieving economic stability of the country. However, a low target for inflation rate is relatively better than high target in terms of lowering unemployment in the country.
Advice by experts
Experts advice that Direct inflation targeting should not be taken as a traditional rule, as it does not give out simple operating instructions to the central bank.
