In recent years, a number of central banks have announced numerical inflation targets as the basis for their monetary strategies. After outlining the reasons why such strategies might be adopted in the pursuit of price stability, this study examines the adoption, operational design, and experience of inflation targeting as a framework for monetary policy in the first three countries to undertake such strategies-New Zealand, Canada, and the United Kingdom. It also analyzes the operation of the long-standing German monetary targeting regime, which incorporated many of the same features as later inflation-targeting regimes. The key challenge for all these monetary frameworks has been the appropriate balancing of transparency and flexibility in policymaking. The study finds that all of the targeting countries examined have maintained low rates of inflation and increased the transparency of monetary policymaking without harming the real economy through policy rigidity in the face of economic developments. A convergence of design choices on the part of targeting countries with regard to operational questions emerges from this comparative study, suggesting some lines of best practice for inflation-targeting frameworks.
SINCE THE PERSISTENCE OF Japan's economic stagnation first became apparent, the Japanese government has been offered a flood of advice from macroeconomic policy analysis. Much of this advice emanated from the official sector, most prominently from the U.S. Treasury and the International Monetary Fund (IMF), but a host of academics were likewise generous in their recommendations. 1 Yet both the degree to which Japan has followed this advice and the effects of the macroeconomic policies undertaken remain in dispute. Economic commentators and other observers of Japan have split over whether standard Keynesian policies were tried and failed, whether the policies implemented had the expected effects but were offset by other factors, or whether some of the recommended policies (monetary expansion, in particular) never were seriously tried at all.
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Independence 1. Introduction Even before the much-cited restructuring of the Reserve Bank of New Zealand in 1990, central banks had been granted varying degrees of independence from short-term political control. The discussion underlying the current fad for central bank independence has assumed that these earlier choices about monetary regimes were made at random, either by interpreting the negative correlation between average inflation rates and indices of central bank independence as prima facie evidence of a causal relationship, or by recommending central bank independence to any and all governments, be they in Paris, Moscow, or Karachi. This paper argues that such an assumption of the exogeneity of monetary institutions is false. National differences in the degree of central bank independence in the postwar period resulted instead from differences in financial sector opposition to inflation. Everything in economics can be construed at some level as endoge-This paper was prepared for the
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