Disadvantages Of Inflation Targeting

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ng is a monetary policy which implies public announcement of official numerical inflation targets, as well as responsibility and dedication of Central Bank in reaching that target. Inflation targeting is initially adopted by New Zealand in 1989., and after that a lot of central banks from developed and emerging countries started accepting it as their main, and in some cases, only goal. This decision was based on benefits of price stability. Inflation was observed as a monetary phenomenon and as such it can only be controlled by monetary policy means, this being the rate of interest under the control of the central bank (Arestis, 2008, p.3). This believe, along with the understanding of fiscal policy as only a supporter of monetary policy in…show more content…
Already by these key elements we can distinguish some of the key advantages of inflation targeting framework. By looking at key aspects and reading the papers by advocates of inflation targeting there are three advantages that stand out. First, it works as a nominal anchor, and by that it erases the question of time inconsistency. This problem means pursuing policy which is effective in short run but can have negative effects in long run. Inflation targeting allows the central bank to be more independent and not pressured by politicians, and also not to exploit the short-run tradeoff between inflation and

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