Anchoring Heuristic Messes with Inflation Targeting

Anchoring Expectations of Inflation

This paper studies existence and uniqueness of equilibrium in a monetary model in which fiscal policy is Ricardian. The innovation of the paper is to model agents’ expectations as endogenous probabilities which are determined in equilibrium. Since economies with a Ricardian fiscal policy typically exhibit indeterminacy of equilibrium when the monetary policy instrument is the short-term interes...

Inflation Targets and Inflation Targeting

There is widespread agreement that price stability (in practice, low and stable inflation) should be an objective of monetary policy. This agreement is reflected both in the mandates set for monetary policy by governments and in the practice of central banks. Several other important questions about the objectives for monetary policy are less settled: Should there be other objectives? If there a...

Turkish Experience with Inflation Targeting

Abstract: Inflation targeting (IT) has recently become a popular monetary policy tool to fight inflation in advanced as well as emerging market economies. IT is assumed to curtail inflationary expectations; aiding monetary authorities implement disinflationary policies. The evidence toward IT’s role in anchoring expectations in practice can be at best described as mixed, if not confusing. In th...

Inflation Targeting

Inflation targeting is a monetary-policy strategy that was introduced in New Zealand in 1990, has been very successful in terms of stabilizing both inflation and the real economy, and as of 2007 had been adopted by more than 20 industrialized and non-industrialized countries. It is characterized by an announced numerical inflation target, an implementation of monetary policy that gives a major ...

Inflation Targeting