Inflation Targeting in the World
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The study of Inflation Targeting in the World is a framework that deals with the espousal of inflation targeting by the emerging market economies. This economic policy is characterized by the public announcement of official quantitative targets for the inflation rate over one or more time periods.
Reasons Behind the Popularity of Inflation targeting:
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Experience of the Developed and Developing Countries:
The developed and developing countries showed that high and unpredictable inflation is not good for growth, employment, and equal distribution of real income in the long run. Also it can’t patronize stronger growth, external competitiveness or employment on a sustainable basis. People having high income or wealth can protect themselves against inflation. That’s why inflation targeting becomes an effective policy framework to reduce the inflation.
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Relationship Between Financial Activity and Real Economy:
The relationship between financial activity and the real economy has been affected seriously by the innovations in financial products and financial markets. That’s why money and credit aggregates became less acceptable or trustworthy as a target for inflation. In many countries, the correlation between money and inflation was getting unstable in the short run. This was the main reason for what inflation targeting was invented in advanced countries. In many countries, inflation targeting was less risky than targeting a monetary aggregate.
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Global Integration of goods:
The global integration of goods and financial markets has impacted the changes in monetary policies.
- Finally, the industrial countries that have embraced inflation targeting got success in providing both policy credibility and flexibility that ends up with a better inflation and growth performance.
Inflation Targeting in the World
