scholarly journals Examining the success of the central banks in inflation targeting countries: the dynamics of the inflation gap and institutional characteristics

2018 ◽  
Vol 22 (1) ◽  
Author(s):  
Omid M. Ardakani ◽  
N. Kundan Kishor
Keyword(s):  
Inflation Targeting ◽  
Panel Data Analysis ◽  
Central Banks ◽  
Institutional Characteristics ◽  
Macroeconomic Performance ◽  
Fiscal Discipline ◽  
Policy Regime ◽  
Conditional Mean ◽  
Inflation Targets ◽  
The Difference

AbstractThis paper analyzes the performance of the central banks in inflation targeting (IT) countries by examining their success in achieving their explicit inflation targets. For this purpose, we decompose the inflation gap, the difference between actual inflation and the inflation target, into predictable and unpredictable components. We argue that the central banks are successful if the predictable component diminishes over time. The predictable component of the inflation gap is measured by the conditional mean of a parsimonious time-varying autoregressive model. Our results find considerable heterogeneity in the success of these IT countries in achieving their targets at the start of this policy regime. Our findings suggest that the central banks of the IT adopting countries started targeting inflation implicitly before becoming an explicit inflation targeter. The panel data analysis suggests that the relative success of these countries in reducing the gap is influenced by their institutional characteristics, particularly fiscal discipline and macroeconomic performance.

scholarly journals Framing Financial Markets: A Methodological Account

2017 ◽  
Vol 2 (2) ◽  
pp. 160-173
Author(s):  
Sheila Dow
Keyword(s):  
Financial Markets ◽  
Methodological Approach ◽  
Central Banks ◽  
Social Phenomenon ◽  
Base Analysis ◽  
The Face ◽  
Market Turbulence ◽  
Inflation Targets ◽  
The Difference ◽  
The Way

The way in which financial markets are framed depends on who is doing the framing, although there are reflexive interdependencies between these framings. The underlying argument of the paper is that the way in which financial markets are framed in theory should reflect the different framings in the economy, and that this may benefit from input from other disciplines. Mainstream economics frames financial markets as archetypical competitive markets, focusing on prices as the key information on which to base analysis. This follows from traditional positivist methodology where computability is the key to theory appraisal. Central banks draw on this analysis for their own framing, but modify it significantly in the face of the requirement to take decisions under palpable uncertainty; some understanding is perceived to be necessary for prediction. Increasingly their role is seen as manipulating expectations in order to achieve inflation targets. Participants in financial markets in turn employ quantitative models for forming their expectations; in conditions of market turbulence the limits to these models become evident, and indeed material to prices themselves. Further, for these participants, markets are a social phenomenon. Finally the households whose experience of financial markets enables or constrains spending frame financial markets in yet another way. Understanding of these various framings would benefit from recourse to other disciplines, notably psychology, sociology and rhetoric. But methodological approach is critical for how these inputs can enhance theorising, as exemplified by the difference between the old and new behavioural economics.

scholarly journals Inflation targeting: From “constrained discretion” to singularity

2020 ◽  
pp. 39-52
Author(s):  
Oleg Buklemishev
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Central Banks ◽  
Political Uncertainty ◽  
Policy Regime ◽  
Dynamic Inconsistency ◽  
Monetary Authorities ◽  
International Monetary Policy

In recent years, inflation targeting has become a staple of international monetary policy. The paper considers different challenges this monetary policy regime faces with regard to suppressed inflation, attaining the zero lower bound on the policy interest rates, and committing central banks to simultaneously pursue additional objectives such as financial stability. Inflation targeting has proved inefficient in raising inflation to the target zone from below, and unorthodox monetary policy tools have not proved their validity in this regard yet. As a result, monetary authorities are more inclined to discretion allowing them to compromise different aspects of “pure” inflation targeting. The value of this discretion is based on asymmetric information and boosted by additional functions assumed by central banks. However, it might bring about serious problems of dynamic inconsistency, compounded political uncertainty, and bureaucratic misconduct. Since none of the alternatives to inflation targeting currently looks fully satisfactory, it is concluded that the inflation targeting regime should be transformed to take into account the current situation, but a necessary precondition for the effectiveness of the new regime is enhanced accountability of central banks.

scholarly journals The role of money in monetary policy design of modern central banks

2007 ◽  
Vol 59 (4) ◽  
pp. 560-578
Author(s):  
Gradimir Kozetinac
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Policy Design ◽  
Central Banks ◽  
Policy Regime ◽  
Important Indicator ◽  
Indicator Variable ◽  
Monetary Aggregates ◽  
Long Run

This paper considers the role of money, particularly the role of monetary analysis in monetary policy-making. During the last three decades, many central banks changed their monetary policy considerably. In the late 1970s money and the long-run effects of its movements on inflation were in the center-stage of economic policy. Given the breakdown of the relationship between monetary aggregates and goal variables such as inflation, many countries in the world have recently adopted inflation targeting as their monetary policy regime. The direct control of money supply lost importance. Central bankers operate in an environment of high uncertainty regarding the functioning of the economy. In such a complex environment, a single model or a limited set of indicators is not a sufficient guide for monetary policy. Monetary aggregates continue to be an important indicator variable concludes the author.

Fiscal Policy: Institutions versus Rules

2005 ◽  
Vol 191 ◽  
pp. 64-78 ◽  
Author(s):  
Charles Wyplosz
Keyword(s):  
Fiscal Policy ◽  
Inflation Targeting ◽  
Central Banks ◽  
Fiscal Rules ◽  
Great Success ◽  
Budget Deficits ◽  
Fiscal Discipline ◽  
Annual Budget ◽  
Long Run ◽  
Short Run

Fiscal discipline is as much needed as monetary discipline. Many countries have attempted to counter the deficit bias by adopting fiscal rules that typically set a limit to their annual budget deficits. The record is not satisfactory; rules are either too lax or too tight and then ignored. This article suggests that the solution is to adopt the approach followed by inflation targeting central banks, with great success. Independent and accountable Fiscal Policy Committees, given the task of achieving debt targets and the authority to decide - or recommend - annual deficits, will be free from the deficit bias. This will allow them to exercise discretion in the short run while delivering debt sustainability in the long run.

Monetary policy and the effect of the transfer of oil prices to inflation

2020 ◽  
pp. 41-50
Author(s):  
Ph. S. Kartaev ◽  
I. D. Medvedev
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Dynamic Models ◽  
Oil Prices ◽  
Oil Price ◽  
Oil Price Shocks ◽  
Negative Effects ◽  
Price Shocks ◽  
Policy Regime ◽  
The Impact

The paper examines the impact of oil price shocks on inflation, as well as the impact of the choice of the monetary policy regime on the strength of this influence. We used dynamic models on panel data for the countries of the world for the period from 2000 to 2017. It is shown that mainly the impact of changes in oil prices on inflation is carried out through the channel of exchange rate. The paper demonstrates the influence of the transition to inflation targeting on the nature of the relationship between oil price shocks and inflation. This effect is asymmetrical: during periods of rising oil prices, inflation targeting reduces the effect of the transfer of oil prices, limiting negative effects of shock. During periods of decline in oil prices, this monetary policy regime, in contrast, contributes to a stronger transfer, helping to reduce inflation.

At the final stage of the global crisis: Economic tasksin 2017-2019

2018 ◽  
pp. 5-29 ◽  
Author(s):  
V. A. Mau
Keyword(s):  
Economic Growth ◽  
Final Stage ◽  
Government Regulation ◽  
Inflation Targeting ◽  
Social Dynamics ◽  
Growth Stimulation ◽  
Central Banks ◽  
Economic Area ◽  
National Trends

The paper deals with the global and national trends of economic and social development at the final stage of the global structural crisis. Special attention is paid to intellectual challenges economists will face with in the post-crisis world: prospects of growth without inflation, new global currencies and the role of cryptocurrencies, central banks independence and their role in economic growth stimulation, new tasks and patterns of government regulation, inequality and growth. Special features of Russian post-crisis development are also under consideration. Among them: prospects of macroeconomic support of growth, inflation targeting, new fiscal rule, social dynamics and new challenges to welfare state. The paper concludes that the main obstacles for economic growth in Russia are concentrated in the non-economic area.

The influence of inflation targeting on the pass-through effect of the exchange rate

2018 ◽  
pp. 70-84
Author(s):  
Ph. S. Kartaev ◽  
Yu. I. Yakimova
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Policy Regime ◽  
Short And Long Term ◽  
The Exchange Rate ◽  
Pass Through ◽  
The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

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