Conducting Monetary Policy with Inflation Targets

Kahn, George A.; Parrish, Klara

doi:10.4324/9780429270949-39

Cited by 9 publications

(4 citation statements)

References 7 publications

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“…A similar finding was reached by Neumann and Hagen (2002) that, on average, the short-term interest rates and volatility have fallen in the IT economies after its adoption. While comparing the variability in short-term interest rates before and after the adoption of IT, Petursson (2005) also found a general decrease in variability after the adoption of IT, a result consistent with the earlier findings of Kahn and Parrish (1998) and Neumann and Hagen (2002).…”

Section: Interest Rate Volatilitysupporting

confidence: 77%

“…Ball and Sheridan (2003) did not find any significant evidence in terms of reduction of interest rate variability that can be advocated to IT. Nevertheless, Kahn and Parrish (1998) observed that short-term nominal interest rates are lower and less volatile in the post-adoption period compared to the pre-adoption period in IT countries. For the real interest rates, they observed that IT countries had witnessed an increase in the real interest rates reflecting tight monetary policy.…”

Section: Interest Rate Volatilitymentioning

confidence: 95%

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Inflation Targeting Skepticism: Myth or Reality? A Way Forward for Pakistan

Zafar Hayat, Saher Masood

2022

pdr

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This paper makes twofold contributions. First, it critically reviews empirical literature along the key dimensions of inflation targeting (IT)—skepticism/critique to ascertain whether such skepticism is a myth or reality. Second, it critically reviews the so-called preconditions and operational prerequisites of IT and evaluates Pakistan’s existing state to draw lessons on whether Pakistan is in a position to adopt IT successfully. Contrary to the skeptic’s views, the review indicates that by and large the benefits of IT are promising not only in terms of macroeconomic performance—as measured by inflation, output, interest rate, exchange rate and their variants—but it also allows flexibility to effectively deal with real, financial as well as external sector shocks. The current state of preconditions and operational prerequisites in Pakistan seems adequate, which better positions the State Bank of Pakistan (SBP) to adopt IT. Statutory prioritisation of price stability, consistent inflation targets, and strict accountability mechanisms as well as aggressive disinflation need to be improved for successful implementation of IT.

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Section: Interest Rate Volatilitysupporting

confidence: 77%

Section: Interest Rate Volatilitymentioning

confidence: 95%

Inflation Targeting Skepticism: Myth or Reality? A Way Forward for Pakistan

Zafar Hayat, Saher Masood

2022

pdr

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“…Many explanations are provided. Ehrmann (2021) claims, for example, that point objectives are more likely to be missed than range targets, although Kahn and Parrish (2020) note exceptional conditions such as shocks in the price of oil. According to Albagli and Schmidt-Hebbel (2003), inflation targets would be frequently missed if institutions were weak, the central bank was not independent and risk premiums were large.…”

Section: Literature Reviewmentioning

confidence: 99%

How optimal is Ghana's single-digit inflation targeting? An assessment of monetary policy effectiveness in Ghana

Amoatey,

Ayisi,

Osei-Assibey

2023

AJEMS

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PurposeThe purpose of this study is twofold. First, to estimate an optimal inflation rate for Ghana and second, to investigate factors that account for the differences between observed and target inflation.Design/methodology/approachThe paper explored the questions within two econometric frameworks, the Autoregressive Distributed Lag (ARDL) and Threshold Regression Models using data spanning the period 1965–2019.FindingsThe study estimated a range of 5–7% optimal inflation for Ghana. While this confirms the single-digit inflation targeting by the Bank of Ghana, the range is lower than the central bank's band of 6–10%. The combined behaviours of the central bank, banks and external outlook influence inflation target misses.Practical implicationsThe study urges the central bank to continue pursuing its single-digit inflation targeting. However, it implies that there is still room for the Bank to further lower the current inflation band to achieve an optimal outcome on growth and welfare. Again, the Bank should commit to increased transparency and accountability to enhance its credibility in attaining the targeted inflation.Originality/valueThe study is one of the first attempts in Africa in Ghana to estimate an optimal inflation target and investigate the underlying factors for deviation from the targets.

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“…Since the early 1990s, a number of central banks (for example, New Zealand, Canada, and the United Kingdom) introduced a new monetary policy strategy based on the direct targeting of a particular measure of inflation. The targets are expressed either as a range for inflation over time, or as a path for the inflation rate (Kahn & Parrish, 1998). By focusing on inflation targeting, monetary policy helps to moderate fluctuations in employment and domestic output.…”

Section: Introductionmentioning

confidence: 99%

Three essays on economic forecasting and theory examination

Dong

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Conducting Monetary Policy with Inflation Targets

Cited by 9 publications

References 7 publications

Inflation Targeting Skepticism: Myth or Reality? A Way Forward for Pakistan

Inflation Targeting Skepticism: Myth or Reality? A Way Forward for Pakistan

How optimal is Ghana's single-digit inflation targeting? An assessment of monetary policy effectiveness in Ghana

Three essays on economic forecasting and theory examination

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