NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Inflation Targeting: Lessons from Four Countries

Frederic S. Mishkin, Adam S. Posen

NBER Working Paper No. 6126 (Also Reprint No. r2180)
Issued in February 1998
NBER Program(s):   EFG   ME

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.

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Published: Economic Policy Review - Federal Reserve Bank of New York, Vol. 3, no. 3 (August 1997): 9-110

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