Description

Inflation targeting has become a global framework, used by countries of many different types and in all the continents of the world. To assess its global contribution, this paper uses one of the broadest ever surveys of monetary policy frameworks to construct an overall picture from the individual jigsaw pieces of framework characteristics. The jigsaw is made of targets and other measures of policy reaction, institutional characteristics such as independence, accountability and transparency, and analytical capacities within the central bank. The paper notes that the use of inflation targets has spread very rapidly in the 1990s, far more so than has the number of “inflation targeting” frameworks. The analysis focuses on the flexible use of inflation (and money) targets, and how these relate to indicators of each of central bank reaction functions, independence, accountability, transparency, and analytical methods. The use of targets appears to have built a strong momentum towards explanation of policy, and the use of inflation targets in particular has provided a vehicle for communication between central banks and governments and the private sector.