Inflation targeting in Hungary: A case study

2008 ◽  
Vol 58 (1) ◽  
pp. 29-59 ◽  
Author(s):  
T. Erdős
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Price Level ◽  
Growth Potential ◽  
Favourable Effect ◽  
Long Run ◽  
Domestic Use ◽  
Harmful Effects

In the present article the author examines how to develop economic and monetary policy in order to efficiently apply inflation targeting. In Hungary, an inflation targeting system has been applied since 2001. As a result of the current monetary policy, consumer price level must regularly be kept stable at least in a mid-term approach in the middle but possibly also in the long run, or else it should be rising slowly, two per cent per year, at the most. Should the monetary authority have to deal with an already existing fast inflation rate, a considerable reduction of the rate of inflation must be aimed at year by year. Once monetary policy succeeds in bringing down inflation, the low rate achieved must permanently be secured. However, it is not sure that monetary policy has to prefer inflation targeting under any circumstances whatsoever.This policy has a favourable effect only if two substantial preconditions are given: public finances are near the equilibrium and nominal wages are regularly adjusted to the growth rate of GDP. Otherwise, inflation targeting may also have harmful effects such as excessive overvaluation of the national currency, excess of domestic use over GNP, increase of domestic and external debt, decreasing trend of the savings and investment rate, lower economic growth potential.

What are the Right Models and Policies for a World of Low Inflation?

2006 ◽  
Vol 196 ◽  
pp. 92-106 ◽  
Author(s):  
Patrick Minford
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Price Level ◽  
Nominal Rigidity ◽  
Long Run ◽  
Exchange Rate Overshooting ◽  
Target Path ◽  
The Right ◽  
High Degree ◽  
Value Of Money

Monetary policy should be guided by macroeconomic models with limited nominal rigidity; ‘New Classical’ or even for some issues just plain Classical (i.e. with no nominal rigidity at all) models are perfectly adequate for understanding various aspects of the economy that have previously led economists to believe in a high degree of nominal rigidity. On UK data these models account for the facts of inflation persistence and exchange rate ‘overshooting’; their impulse responses are in line with the data; and a typical example, the Liverpool Model, is marginally accepted in its entirety by the data since 1979. Such models suggest that no increased macro instability would result from taking the rigours of monetary policy one stage further from inflation targeting and ensuring that the price level itself is returned to its long-run preset target path — so that the value of money over long periods of time would be utterly predictable.

scholarly journals "Does Inflation Targeting Framework Make a Significant Difference in Lowering Price Level?” What is Its Implication to Indonesia’s Inflation Rate?

2015 ◽  
Vol 61 (2) ◽  
pp. 131
Author(s):  
Faisal Rachman
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Price Level ◽  
Structural Break ◽  
Policy Framework ◽  
Difference In Difference ◽  
Public Expectation ◽  
Significant Difference ◽  
Monetary Policy Framework

AbstractIn the last two decades many countries have been starting to employ Inflation Targeting Framework (ITF) as their main monetary policy framework. This is done to achieve an objective of anchoring public expectation on inflation which in the end will steer the price level movement towards ITF’s ultimate target of relatively low and stable inflation rate. By conducting Difference-in-Difference method on panel data consisting of five countries implementing ITF since 2001 and twenty-one selected non-ITF countries for period 1990-2010, it is statistically proved that ITF adoption has a significant effect on inflation. In case of Indonesia, through Structural Break approach, the implementation of ITF since 2005 is also proved able to lower and stabilize inflation rate.Abstrak Dalam dua dekade terakhir ini banyak negara yang telah mulai menggunakan Inflation Targeting Framework (ITF) sebagai kerangka utama kebijakan moneter mereka. Hal ini dilakukan guna mencapai tujuan pengendalian ekspektasi publik yang pada akhirnya akan mengendalikan pergerakan tingkat harga relatif rendah and stabil. Dengan menggunakan metode Difference-in-Difference pada data panel, yang terdiri dari lima negara yang telah mengimplementasikan ITF sejak tahun 2001 dan dua puluh satu negara bukan pengguna ITF, untuk periode 1990-2010, disimpulkan bahwa ITF memiliki dampak signifikan pada tingkat inflasi. Untuk kasus Indonesia yang telah mengimplementasikan ITF sejak tahun 2005, melalui metode Structural Break disimpulkan hasil yang sama, yaitu tingkatan harga yang rendah dan stabil.

scholarly journals Adopting Inflation Targeting in Pakistan: An Empirical Analysis

2010 ◽  
Vol 15 (2) ◽  
pp. 51-76 ◽  
Author(s):  
Nadia Saleem
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Policy Option ◽  
Price Stability ◽  
Potential Candidate ◽  
Long Run ◽  
The Interest Rate ◽  
Nominal Anchor

The objective of this paper is to assess the conditions for inflation targeting in Pakistan. The recent inflationary surge in Pakistan calls for rethinking monetary policy afresh. This paper argues the case for inflation targeting in Pakistan as a policy option to achieve price stability. The country experienced an inflation rate of just below 10 percent during 1970-2009, which makes it a potential candidate for inflation targeting. Applying the VAR technique to data for the same period, inflation is shown to be adaptive in nature, leading us to reject the accelerationist hypothesis. The Lucas critique holds as people are found to use forward-looking models in forming expectations about inflation. The paper also sheds some light on the State Bank of Pakistan’s level of preparedness for the possibility of adopting inflation targeting, for which transparency and autonomy are prerequisites. The interest rate channel can play the role of a nominal anchor in the long run.

scholarly journals Interactions among Economic Ideas, Policies and Experience - The Establishment of Inflation Targeting in Canada, 1991-2001

2020 ◽  
Vol 12 (2) ◽  
pp. 133-165
Author(s):  
David Laidler
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Price Level ◽  
Flexible Exchange Rate ◽  
Money Growth ◽  
Policy Regime ◽  
Domestic Prices ◽  
The Stability

In Canada, targeting the inflation rate was intended as a temporary measure during a transition to price-level stability, but became a well-established monetary policy regime in its own right. This paper analyses the role of the interaction of economic ideas with the experience generated by their application to policy in bringing about this outcome. In the following account, changing beliefs about the stability or otherwise of ongoing inflation, the capacity of a flexible exchange rate to create a vicious circle of depreciation and rising domestic prices, are emphasised, while ideas about the natural unemployment rate and money growth in influencing economic outcomes are also discussed. Today’s standard theoretical approach to modelling inflation targeting arrived on the scene only as the Canadian regime was becoming well established.

scholarly journals Price Level Risk and Some Long-Run Implications of Alternative Monetary Policy Strategies

2020 ◽  
Vol 2020 (093) ◽  
pp. 1-54
Author(s):  
James A. Clouse ◽  
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Price Level ◽  
Weighted Average ◽  
Consumer Finances ◽  
Empirical Estimates ◽  
Long Run ◽  
Or Groups ◽  
Real Value ◽  
Policy Strategies

This note focuses on the longer-run implications of alternative monetary policy strategies for the evolution of the price level. The analysis compares the properties of optimal policy in regimes ranging from pure inflation targeting (IT), to a form of weighted-average inflation targeting (WAIT), to pure price level targeting (PLT). Strategies such as WAIT and PLT tend to limit the downward drift in the path of the price level and also mitigate the uncertainty surrounding the expected path of the price level. The influence of alternative monetary policy strategies on the evolution of the price level may have some important long-run implications for entities or groups that rely heavily on long-term nominal debt. Some simple empirical estimates suggest the real value of existing Treasury debt could be boosted significantly in moving from a world in which the ZLB constraint rarely binds to one in which it regularly binds. Similarly, data from the Survey of Consumer Finances indicate that households at lower income levels, and particularly those with mortgage or educational loans outstanding, are exposed to significant price level risk. As a result, such households can experience a significant reduction in their real wealth, on average, in the transition to a world with frequently binding ZLB constraints. The WAIT and PLT regimes significantly mitigate these potential costs for these groups.

scholarly journals MONETARY POLICY AND TELECOMMUNICATION OUTPUT IN NIGERIA

2020 ◽  
Vol 3 (2) ◽  
pp. 62-73
Author(s):  
John Abiodun Akinde ◽  
Elijah Oludayo
Keyword(s):  
Monetary Policy ◽  
Money Supply ◽  
Negative Relationship ◽  
Negative Influence ◽  
Favourable Effect ◽  
Data Series ◽  
Long Run ◽  
Integration Test ◽  
Short Run ◽  
Positive Effect

Different policies impact on the growth of the telecommunication sector in Nigeria. One of these policies which influence the expansion or contraction of the telecommunication output is monetary policy. To this end, this research examined the effect of monetary policy on telecommunication output in Nigeria. For the purpose of analysis, time series secondary data were sourced from Central Bank of Nigeria (CBN) statistical bulletin covering the periods1986 to 2018. Autoregressive Distributed Lag (ARDL) technique was employed after examining the stationarity of the data series using Augmented Dickey-Fuller technique. The bound co-integration test revealed that there is long run equilibrium between the monetary policy variables employed and telecommunication output. The ARDL result revealed that money supply had significant and positive effect on telecommunication output in the short and long run; liquidity ratio produced an insignificant and negative relationship with telecommunication output in the short run and insignificant positive effect in the long run; exchange rate had insignificant negative effect in the short run and a significant positive effect on telecommunication output in the long run; consumer price index had significant negative influence on telecommunication outputboth in the short run and long run. The study concluded that monetary policy stimulates telecommunication output in Nigeria. Thus, it was recommended that the monetary authority should pursue an expansionary monetary policy to sustain the positive influence of money supply on telecommunication output in Nigeria while rolling out policy to reduce the liquidity ratio of banks in the short run but increase it in the long run so that the long term favourable effect of liquidity ratio can be felt on telecommunication output.  

scholarly journals Regular Econometric Model of Taylor for Albania

2016 ◽  
Vol 5 (1) ◽  
pp. 123
Author(s):  
Ergys Misha
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Interest Rates ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Stock Exchange ◽  
Central Banks ◽  
Financial Assets

The Taylor’s Rule Central Banks is applying widely today from Central Banks for design the monetary policy and for determination of interest rates. The purpose of this paper is to assess monetary policy rule in Albania, in view of an inflation targeting regime. In the first version of the Model, the Taylor’s Rule assumes that base interest rate of the monetary policy varies depending on the change of (1) the inflation rate and (2) economic growth (Output Gap).Through this paper it is proposed changing the objective of the Bank of Albania by adding a new objective, that of "financial stability", along with the “price stability”. This means that it is necessary to reassess the Taylor’s Rule by modifying it with incorporation of indicators of financial stability. In the case of Albania, we consider that there is no regular market of financial assets in the absence of the Stock Exchange. For this reason, we will rely on the credit developmet - as a way to measure the financial cycle in the economy. In this case, the base rate of monetary policy will be changed throught: (1) Targeting Inflation Rate, (2) Nominal Targeting of Economic Growth, and (3) Targeting the Gap of the Ratio Credit/GDP (mitigating the boom cycle, if the gap is positive, and the contractiocycle if the gap is negative).The research data show that, it is necessary that the Bank of Albania should also include in its objective maintaining the financial stability. In this way, the contribution expected from the inclusion of credit gap indicators in Taylor’s Rule, will be higher and sustainable in time.

scholarly journals Albania's Monetary Policy and the Basic Indicators that Effect the Economic Growth

2019 ◽  
Vol 2 (2) ◽  
pp. 51
Author(s):  
Bernard Balla
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Full Employment ◽  
Price Stability ◽  
Macroeconomic Policies ◽  
Consumer Prices

Macroeconomic policies aim to stabilize the economy by achieving their goal of price stability, full employment and economic growth. Price stability is the responsibility of macroeconomic policies that are developed to maintain a low inflation rate, contribute to the solidity of the domestic product and maintain an exchange rate that can be predictable. The purpose of this paper is to analyze Albania's monetary policy by highlighting the main indicators that can be used as a measurement of the efficiency of this policy in the economic development. The literature review shows that there are many attitudes regarding the factors that need to be taken into consideration when analyzing monetary policies, including the elements of fiscal policies. In the Albanian economy, the prices and the level of inflation are the most important aspects. The Bank of Albania uses the inflation targeting regime, considering that the main indicator of inflationary pressures in the economy is the deviation of inflation forecasted in the medium term by its target level. In numerical terms, the bank intends to maintain its annual growth in consumer prices at the level of 3%. According to the latest reports published by the Bank of Albania in 2019, monetary policy continues to contribute positively to a financial environment with a low interest rate and an annual inflation rate of 2%. Although the inflation rate hit the lowest value of 1.8 % in 2018, a balanced rate was achieved through the reduction of interest rates and risk premiums in financial markets and, more recently, through the tightening of the exchange rate. These monetary conditions are appropriate to support the growth of domestic demand and the strengthening of inflationary pressures.

Controlling Money Supply And Price Level With Unknown Regime Shifts: The Case Of Chile

2011 ◽  
Vol 24 (2) ◽  
Author(s):  
Abdulnasser Hatemi-J ◽  
Manuchehr Irandoust
Keyword(s):  
Monetary Policy ◽  
Steady State ◽  
Money Supply ◽  
Price Level ◽  
Regime Shifts ◽  
Font Size ◽  
Long Run ◽  
Causality Tests ◽  
The Relationship ◽  
Second Period

<p class="MsoNormal" style="text-align: justify; margin: 0in 0.5in 0pt;"><span style="font-size: 10pt;" lang="EN-GB"><span style="font-family: Times New Roman;">This paper investigates the relationship between money supply and price level using new tests for cointegration with two unknown regime shifts and bootstrap causality tests. Quarterly Chilean data from 1973: I to 2006: III is used. We find empirical evidence that the variables establish a long-run steady state relationship in the presence of two regime shifts. The elasticity of price level with regard to money supply is close to unity during the first period (prior to 1978: II). The elasticity is reduced during the second period (1978: III-1986: I) and it is also reduced for the remaining period but the reduction is smaller. We also conducted bootstrap causality tests that reveal the following: in the first sub-period there is bidirectional causality between the underlying variables. In the last two sub-periods money supply causes the price level only. This implies that money supply is weakly exogenous concerning the price level and that the monetary authority had enough independence to execute an active monetary policy in Chile. <span style="mso-bidi-font-weight: bold;"></span></span></span></p>

Pre-conditions for Inflation Targeting in an Emerging Economy: The Case of India

2013 ◽  
Vol 13 (1) ◽  
pp. 89-108 ◽  
Author(s):  
Ankita Mishra
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Emerging Economy ◽  
Policy Option ◽  
Target Range ◽  
Policy Regime ◽  
Indian Economy ◽  
Major Threat ◽  
Supply Shocks

This article looks at the preconditions that an emerging economy needs to fulfill, before it can adopt inflation targeting as a monetary policy regime. The study is conducted using the Indian economy as a case study. We conduct sector-wise analysis of the Indian economy to evaluate the independence of India’s monetary policy from fiscal, external, structural and financial perspectives. Dominance from any of these sectors may divert monetary policy from the objective of maintaining price stability in the economy. Our analysis suggests that among the four dominance issues, the issue of “structural dominance” is the most acute for India. Supply shocks, hitting the economy due to structural bottlenecks, pose a major threat to the independent conduct of monetary policy. This study concludes that inflation band targeting with a wide target range would be a feasible monetary policy option for India.

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