Inflation Targeting: An Alternative to Monetary Policy

TLDR: In this paper, the role of transparency and credibility of monetary policy as a performance criterion that motivate any country wishing to adopt inflation targeting regimes is discussed, which tends an inflation targeting regime cannot be attained without respect of institutional and technical conditions.

Abstract: In a context marked by an overhaul of the monetary theory and the emergence of new monetary policy strategy  based on inflation targeting regime, this work is part of monetary policy recently implemented by a set of emerging markets. It focuses on both theoretical and empirical analysis of the inflation targeting regime. At first, it treats the theoretical framework of inflation targeting from the conceptual and analytical aspects that seem complete reflection of the "rule versus discretion" debate. This paper focuses on the role of transparency and credibility of monetary policy as a performance criterion that motivate any country wishing to adopt inflation targeting regimes, this study shows these two basic principles which tends an inflation targeting regime cannot be attained without respect of institutional and technical conditions. The analysis of the operating mechanisms of the inflation targeting regime has allowed studying the experiences of a sample of emerging countries in this field and focus, on the initial findings and lessons learned from the implementation of anchor inflation. The analysis then focuses on the empirical verification. We use the panel data analysis through the model of Sheridon and Ball (2003). The results show without exception, that all inflation targeting countries has a lower and less volatile inflation. Similarly, we find that the policy rules for inflation targeting has macroeconomic performance of countries improved by providing a level of low and stable inflation with an economic growth sustainable and non-volatile.