First version: June 2009
This version: October 2010
Forthcoming in Friedman, Benjamin M., and Michael Woodford, eds., Handbook of Monetary Economics, Volume 3a and 3b, North-Holland.
Inflation targeting is a monetary-policy strategy that is characterized by an announced numerical inflation target, an implementation of monetary policy that gives a major role to an inflation forecast and has been called forecast targeting, and a high degree of transparency and accountability. It was introduced in New Zealand in 1990, has been very successful in terms of stabilizing both inflation and the real economy, and has, as of 2010, been adopted by about 25 industrialized and emerging-market economies. The chapter discusses the history, macroeconomic effects, theory, practice, and future of inflation targeting.
JEL Classification: E52, E58, E42, E43,
E47
Keywords: Flexible inflation targeting, forecast targeting, optimal monetary
policy, transparency