Working Paper: NBER ID: w16654
Authors: Lars E.O. Svensson
Abstract: Inflation targeting is a monetary-policy strategy that is characterized by an announced numerical inflation target, an implementation of monetary policy that gives a major role to an inflation forecast and has been called forecast targeting, and a high degree of transparency and accountability. It was introduced in New Zealand in 1990, has been very successful in terms of stabilizing both inflation and the real economy, and has, as of 2010, been adopted by about 25 industrialized and emerging-market economies. The chapter discusses the history, macroeconomic effects, theory, practice, and future of inflation targeting.
Keywords: Inflation targeting; Monetary policy; Macroeconomic stability
JEL Codes: E42; E43; E47; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation targeting (E31) | lower average inflation rates (E31) |
| inflation targeting (E31) | reduced volatility in inflation (E31) |
| inflation targeting (E31) | improved macroeconomic performance (E69) |
| inflation targeting (E31) | similar or better economic outcomes compared to non-targeters (P47) |
| forecast targeting (C53) | enhanced effectiveness of monetary policy (E52) |
| inflation targeting (E31) | inflation expectations stability (E31) |
| inflation targeting (E31) | output stability (E23) |