FROM MONETARY TARGETING TO INFLATION TARGETING: LESSONS FROM THE INDUSTRIALIZED COUNTRIES by

The paper looks at the evolution of monetary policy in industrialized countries by evaluating two monetary policy strategies, monetary targeting and inflation targeting. The paper provides brief case studies of countries that have adopted these two strategies and draws a set of lessons. The experience with monetary targeting suggests that although it was successful in controlling inflation in Switzerland and especially Germany, the special conditions in those two countries that made it work reasonably well are unlikely to be satisfied elsewhere. Inflation targeting therefore is more likely to lead to better economic performance for countries that choose to have an independent domestic monetary policy. Nevertheless, there are subtleties in how inflation targeting is conducted and the lessons from the industrialized countries examined in this paper will hopefully be of use to central banks designing their monetary policy framework. Frederic S. Mishkin Graduate School of Business Uris Hall 619 Columbia University and NBER [email protected]