Figure 1 Consumer Prices : 1971 to February 1997 , 12 - Month Percentage

Johnson’s paper addresses one of the main issues of central banking: How successful have monetary authorities been in acquiring credibility for their inflation objectives? Johnson’s approach is both simple and elegant. For countries with explicit inflation targets, he examines whether inflation expectations are consistent with those targets. Since not all central banks have explicit inflation targets, he also asks whether inflation has been easily predictable, since this is viewed as one indicator of the successful implementation of monetary policy. The results, though mixed, are not particularly favourable for those countries with explicit inflation targets. Most countries that tried to establish “credible” inflation targets over the sample period failed, and inflation was in general no easier to predict in countries with targets than in those without.