scholarly journals The effectiveness of the inflation targeting regime as the basis for monetary policy in the conditions of crisis in the economy

2021 ◽  
pp. 20
Author(s):  
Oleksandr Dziubliuk
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Large Scale ◽  
Inflation Targeting ◽  
Developing Economies ◽  
Developed Countries ◽  
Gradual Transition ◽  
Monetary Regime ◽  
Low Efficiency ◽  
The Impact

Introduction. Inflation targeting, as a commitment by the central bank to adhere to quantitative inflation rates, has become a fairly common monetary regime in the last few decades in developed countries and developing economies. However, the impact of the pandemic crisis on the course of economic processes has revealed serious problems associated with the low efficiency of this regime. Therefore, there is an objective need to re-evaluate the system in which the central bank focuses monetary regulation solely on price stability, ignoring other strategic directions of government policy related to the need to save economic activity and prevent a large-scale recession.Purpose. Clarification of the peculiarities of the implementation of monetary policy on the basis of the inflation targeting regime and identification of problematic aspects of this regime in the conditions of external shocks and the unfolding economic crisis.Methods. General scientific and empirical techniques and tools of economics, methods of analysis and synthesis, comparison, compilation and grouping are used.Results. The crisis indicates the need to build a monetary regime that would meet the interests of sustainable economic growth and social welfare. In Ukraine, there were no proper initial preconditions for the inflation targeting regime implementation. Therefore, adjusting the priorities of monetary policy in the crisis should reflect the gradual transition to a more flexible regime using monetary methods to support households and businesses, promote job creation, and stimulate aggregate demand.Prospects. Research of ways to increase the level of flexibility of monetary regulation, opportunities to expand the mandate of the central bank and improve the choice of optimal areas of influence on the economy with the help of monetary instruments at its disposal.

scholarly journals Effectiveness of Central Bank Independence via Its Internal Characteristics

2011 ◽  
Author(s):  
Caroll H. Griffin
Keyword(s):  
Central Bank ◽  
Informal Economy ◽  
Developing Economies ◽  
Developed Countries ◽  
Central Banks ◽  
Central Bank Independence ◽  
Reserve Requirements ◽  
Formal Economy ◽  
The Impact ◽  
Macroeconomic Environment

This study examines central bank independence in developing countries of Latin America and Asia as well as selected developed countries. Many countries around the world, both developed and developing, have accepted the idea of central bank independence over the last several decades, so central banks have autonomy. A majority of studies has examined primarily the impact of central bank independence on inflation as promoting the theoretical benefits of a more stable and prosperous macroeconomic environment. However, there is only now sufficient data to empirically determine whether these claims are true. This research attempts to answer why developing economies with an informal sector resort to inflationary measures to finance their activities; how does a government induce an agent to choose the formal economy. In the trade-off between inflation and reserve requirements, the optimal policy is maximum inflation and minimum reserve requirements as increasing the steady-state utility of an optimizing agent. Also agents prefer the informal economy if policy relies on a maximum reserve requirement.  

The New Monetary Regime: Introduction

2006 ◽  
Vol 196 ◽  
pp. 63-65
Author(s):  
S.G. Hall ◽  
S.G.B. Henry
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Inflation Targeting ◽  
European Monetary ◽  
The Past ◽  
Monetary Regime ◽  
1960S And 1970S ◽  
European Monetary Policy ◽  
The 1960S ◽  
Policy Setting

Perhaps the most striking feature of macroeconomic policy of the past twenty or thirty years has been the emergence of a consensus that monetary policy should be delegated to an independent authority. The world has moved from a situation in the 1960s and 1970s where there were very few independent central banks — in Europe the main example was the Bundesbank of course — to one now where independence is almost standard. Indeed with the foundation of the European Central Bank and the eurosystem the Bundesbank model has effectively come to dominate European monetary policy. The collection of papers in this issue of the Review consider this move in policy setting from a number of diverse perspectives including the move to inflation targeting as well as central bank independence. They assess the effectiveness of this move, describing how an independent monetary authority actually does operate, as well as how it might utilise information more effectively

scholarly journals The Impact of Monetary Policy on the Financial Stability of the Banking System: Setting a Modeling Problem

2021 ◽  
Vol 2 (517) ◽  
pp. 81-88
Author(s):  
A. D. Pilko ◽  
◽  
V. R. Kramar ◽  
Keyword(s):  
Monetary Policy ◽  
Financial Stability ◽  
Inflation Targeting ◽  
Banking System ◽  
Practical Implementation ◽  
Development Scenarios ◽  
Dynamic Stochastic ◽  
Low Efficiency ◽  
Traditional Approaches ◽  
The Impact

The publication is concerned with highlighting the results of the carried out analysis of the existing practice of developing macroeconomic models directed towards determining the main parameters of monetary policy of central banks, as well as assessing their impact on the indicators of financial stability of the banking system. Given the low efficiency of the traditional approaches to the formation of the monetary rule both in countries with developed market economies and in countries with small open economies (in particular, Taylor rule), possible ways to solve this problem are proposed taking into account the existing experience in shaping monetary policy parameters in the context of inflation targeting, which is already available at the NBU. The strengths and weaknesses of the main approaches to the modeling of the monetary transmission mechanism, as well as the forecasting of its impact on the financial stability of the banking system, which are used in the formation of basic and auxiliary models of the central bank, are analyzed. Particular attention is paid to structural econometric models, vector autoregression models and dynamic stochastic models of general equilibrium. As a result, a possible variant for developing an approach to macroeconomic modeling is proposed, in the framework of which assessment and analysis of the impact of monetary policy on the indicators of financial stability of the banking system is envisaged. The practical implementation of this approach makes it possible to develop models for assessing and analyzing the efficiency of the current monetary policy, projecting macroeconomic development scenarios in the short and medium term, which will both directly and indirectly determine the indicators of financial stability of the banking system.

Political economy of central-bank mandates in developing countries

2021 ◽  
pp. 1-20
Author(s):  
Zhandos Ybrayev
Keyword(s):  
Monetary Policy ◽  
Unemployment Rate ◽  
Inflation Targeting ◽  
Developing Economies ◽  
Emerging Market ◽  
Unemployment Rates ◽  
Inflation Volatility ◽  
Unemployment Volatility ◽  
The Impact ◽  
Fiscal And Monetary Policy

In this paper, I explain theoretically the coordination and conflict scheme of fiscal and monetary policy workings, and then empirically assess the effect of both inflation-targeting and non-inflation-only targeting policies on inflation and unemployment rates. I employ a difference-in-difference method to estimate the impact on inflation, the unemployment rate, and their volatilities in both 10 inflation-targeting (single-mandate) and 11 non-inflation-targeting (multiple-mandate) countries specifically from the sample of developing economies over the period from 1998 to 2018. Our key findings show that while the inflation-targeting countries effectively present a reduction in inflation and inflation volatility, the effects on the unemployment rate are negligible, while unemployment volatility is higher in the period 1998–2008. Finally, the paper argues that the unemployment rate should be used as a natural second target in a typical emerging-market economy case.

scholarly journals The external impacts of Central Bank independence

2010 ◽  
Vol 21 (54) ◽  
pp. 51-63 ◽  
Author(s):  
Carroll Howard Griffin
Keyword(s):  
Central Bank ◽  
Financial Crises ◽  
Inflation Targeting ◽  
Standard Procedure ◽  
Developed Countries ◽  
Central Banks ◽  
Central Bank Independence ◽  
The World ◽  
The Impact ◽  
Macroeconomic Environment

The term "central bank independence" (or abbreviated, CBI) can be broadly defined as the degree of freedom of the central bank to pursue monetary policy without interference from political considerations. The idea of central bank independence has been widely accepted over the last several decades by many countries around the world, both developed and developing. Since being first written about academically in the late 1980s, many countries have come to adopt this policy and many governments have come to recognize this as standard procedure. As such, many countries around the world granted autonomy to their central banks during the 1980s and 1990s. The majority of past studies have examined primarily the impact of central bank independence on inflation. however, the additional theoretical benefits are much more far reaching, the result of a more stable and prosperous macroeconomic environment. Additionally, there is only now sufficient data to empirically determine whether many of these claims are true. This study examines central bank independence in developing countries of Latin America and Asia as well as selected developed countries to determine what actual impact an autonomous central bank has had. It also examines such phenomena as financial crises (including the current global crisis of 2008-2009), inflation targeting, legal systems, country development and fiscal policy to determine the effects of these items on not only inflation, but the broad spectrum of macroeconomic outcomes. Although there is some empirical evidence to support the benefits of central bank independence, it is limited in scope to certain areas.

scholarly journals Central Bank Communication and Policy Interest Rate

2020 ◽  
Vol 12 (1) ◽  
pp. 76
Author(s):  
Haryo Kuncoro
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Central Bank Communication ◽  
Inflation Expectation ◽  
Expectation Gap ◽  
The Impact ◽  
Policy Interest

Central bank communications play an important role in the monetary policy. In the inflation-targeting frameworks, central bank communications might guide public to shape inflation expectations and then determine actual inflation rates through which the policy interest rates policy would manage them. This paper studied the impact and central bank monetary policy communications on the policy interest rate. Unlike other studies, this paper uses two stages. First, we estimate the impact of central bank communication on the inflation expectation gap. Second, we use the estimated value of inflation expectation gap to predict the policy interest rate. The study found evidence that economic agents analyse the Governor Board of Central Bank of Indonesia meeting decisions every month to shape their inflation expectation. Therefore, the difference between inflation expectation and actual inflation tends to narrow. The inflation expectation gap affects the policy interest rates in Indonesia. In other words, the policy interest rates can control the inflation rate and anchor expectations as required by the inflation-targeting framework.

scholarly journals The impact of inflation targeting framework on food price inflation: evidence from developing economies

2017 ◽  
Vol 6 (4) ◽  
pp. 53-60 ◽  
Author(s):  
Abhijit Surya
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Developing Economies ◽  
Policy Instruments ◽  
Food Prices ◽  
Policy Framework ◽  
Price Inflation ◽  
Inflation Rates ◽  
The Impact ◽  
Monetary Policy Framework

Inflation Targeting (IT) has gained much popularity in recent years, with fifteen countries formally adopting it as a monetary policy framework since 2000. However, in developing countries, where the contribution of food prices to headline inflation is generally higher than in advanced economies, the adequacy of an IT framework for curbing inflation is very much contested. In this paper, we use a difference-in-differences approach to evaluate the treatment effect of adopting IT. Controlling for reversion to the mean, we find that economies that function under an IT regime do no better than countries that use alternative policy instruments. We verify the robustness of these results using panel unit-root tests and find that food inflation rates converge across economies irrespective of the monetary policy framework implemented.

scholarly journals Analysis of nominal exchange rate pass-through effect on inflation rate in selected countries

Bankarstvo ◽  
2021 ◽  
Vol 50 (3) ◽  
pp. 8-35
Author(s):  
Aleksandra Živković
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Inflation Rate ◽  
Developed Countries ◽  
Nominal Exchange Rate ◽  
Policy Regime ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

Inflation rate is one of the essential macroeconomics variables and it represents the main goal of monetary policy. It is determined by a great number of factors, so it is necessary to analyse the impact their changes have on inflation rate. The purpose of this research is the analysis of the nominal exchange rate pass-through effect on inflation rate in selected emerging and developed countries in the period 2014-2020, which share the same characteristics of inflation targeting, as main monetary policy regime, and managed floating exchange rate, as exchange rate type. Inverse proportion between volatility of nominal exchange rate and inflation rate is proven (depreciation of nominal exchange rate of national currency leads towards the growth of inflation rate), as well as higher pass-through effect in emerging countries compared to developed countries.

Non-Neutral Money: A Market Process Perspective

2018 ◽  
Vol 24 (1) ◽  
Author(s):  
François Facchini
Keyword(s):  
Monetary Policy ◽  
Central Bank ◽  
Unemployment Rate ◽  
Inflation Targeting ◽  
Phillips Curve ◽  
Central Banking ◽  
Market Process ◽  
Credit Expansion ◽  
Long Run ◽  
The Impact

AbstractThis article studies the impact of a credit expansion monetary policy on output and unemployment rate. In the introduction the history of the Phillips curve and its interpretation are presented to understand why New Consensus Macroeconomics argues that monetary policy is neutral in long-run i. e. has no effect on economic activity and natural unemployment rate. This New Consensus Macroeconomics supports the independence of the Central Bank, inflation-targeting and the strategy of constrained discretion model and influences strongly the monetary policy of central bank today. The second section critics these three principles of the new consensus. It opposes free-banking to central banking system, and takes the defense of deflation to critic the inflation-targeting. Then the third section deals with long-run neutrality of monetary policy. In an Austrian Business Cycle perspective, there is neutrality of monetary only if the production structure must always return exactly to its level of before the boom. It is improbable, because the monetary policyviatax inflation and artificial variation of real interest rate has a long-run effects on the conditions of financing of entrepreneurial project andin fineall the market process dynamic.

scholarly journals The Global Economic Crisis and its Effects on the Monetary Policy of Turkey

2012 ◽  
Author(s):  
Serdar Öztürk ◽  
Ali Sözdemir ◽  
Özlem Ülger
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Economic Crisis ◽  
Large Scale ◽  
Debt Crisis ◽  
Developed Countries ◽  
The United States ◽  
The World ◽  
Global Economic Crisis ◽  
The Impact

Capitalism has faced the most severe and the longest crisis since 1929. Resource of the emerging financial crisis in the second half of 2007 was mortgage crisis that experienced in the United States. The collapse of housing market has caused great instability in the financial markets and then turned into the strong liquidity crisis and spread all over the world. The impact of global economic crisis on the world economies in the last quarter of 2008 was very fast and it occured in a devastating way. In this process, the asset prices declined, capital of financial institutions seriously damaged and this caused bankruptcy of many large financial organizations such as Lehman Brothers. In this context, the growth rates in the world fell down quickly, external demand contraction and global export decreased. At this point, developed countries applied large scale financial incentive packages. Especially, the Central Banks of developed countries have provided exceptional levels of liquidity that is used as a monetary policy tool by taking the risk of deterioration of their balance sheets. During this period, as a result of these policies followed by money and finance authorities have changed only the shape of global crisis and as a result the financial crisis has turned into a debt crisis. The effects of Global Economic Crisis on the Turkish economy emerged prominently in the last quarter of 2008. However, in comparison with many European countries, it is clear that all dynamics have became more favourable for Turkey after 2010.

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