Andy Rose’s paper provides important evidence on the impact on how monetary regimes fared during the recent global financial crisis. The paper has two basic results. First, it shows that the two monetary regimes, hard fixing and inflation targeting, have become surprisingly durable and were able to withstand the stress of the shocks from the global financial crisis. Before the global financial ...

Inflation targeting was first introduced in 1990, in New Zealand. Since then it has been adopted by more than twenty countries. This period of fifteen years has seen major progress in practical monetary policy. In particular, the practice of inflation targeting has led to a more systematic and consistent internal decision process (Brash, 2000; Sims, 2002; Svensson 2001a); much more transparent ...

I report some personal views and reflections on transparency experiences and transparency challenges following my first year and a half as Deputy Governor at Sveriges Riksbank regarding (1) flexible inflation targeting, (2) the role of transparency in inflation targeting and committee decisions on instrument-rate paths, (3) the management of interest-rate expectations, and (4) the publishing of...

We argue that there are conditions such that any inflation targeting regime is preferable to full policy discretion, even if long-run inflation rates are identical across regimes. The key observation is that strict inflation targeting outperforms the discretionary policy response to sufficiently persistent shocks. Under full policy discretion, inflation expectations over the medium term respond...

Speed limit policy, a monetary policy strategy that focuses on stabilizing inflation and the change in the output gap, consistently delivers better welfare outcomes than flexible inflation targeting or flexible price level targeting in empirical New Keynesian models when policymakers lack the ability to commit to future policies. Even if the policymaker can commit under an inflation targeting s...

Several European countries adopted inflation targeting as a monetary policy strategy during the 1990s. This article evaluates the impact of the establishment of this policy framework on the dynamics of inflation for three countries: United Kingdom, Spain and Finland. While smaller shocks triggered most of the decline in their high frequency inflation volatility, this is not always the case for ...

In models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We develop a two-sector new-Keynesian model to evaluate different inflation targeting rules in economies with financial frictions. We conclude that, in the presence of financial frictions, a welfaremaximizing central bank should adopt flexible head...

This paper assesses the prospects for the new Polish monetary policy strategy of inflation targeting. Regarding the general requirements for implementing an inflation targeting strategy it appears that Poland has made sufficient progress in reducing fiscal dominance and hardening budget constraints. The paper also finds that the exchange rate has played a dominant role as a policy instrument, w...

This paper compares the performances of three alternative nominal anchors, i.e., price inflation, nominal income growth, and money growth in an estimated monetary business cycle model. The representative household’s lifetime utility is used as a natural welfare metric, and the welfare effects of the non-linear dynamics are captured by a quadratic approximate solution method. Strict inflation ta...

Many countries in the developing world have adopted an approach to monetary policy that focuses on maintaining a low level of inflation, to the exclusion of other important objectives such as employment generation, increasing investment or reducing poverty, despite the widespread evidence that moderate levels of inflation have few or no costs. Some have even adopted formal " inflation targeting...