Inflation Targeting - the Holy Grail of Monetary Policy

Inflation targeting is a statement about the objective of central bank policy and not about operating procedures. Its success depends not only on the actions of the central bank, but requires a broad consensus concerning the proper role of monetary policy in the economy. It also requires the backing of a sound fiscal policy. As countries differ both in economic structure and monetary transmission mechanism, the implementation of inflation targeting must be country specific. Instability over time in the transmission mechanism also implies that inflation targeting strategies must evolve over time to avoid the fate of previous monetary policy targeting practices. © The Authors. All rights reserved. No part of this paper may be reproduced without the permission of the authors.