Inflation Targeting
Inflation targeting is an economic policy in which a central bank sets and announces a target inflation rate and then attempts to steer actual inflation towards the target rate through the use of monetary policy. It is a type of monetary policy that is used by central banks to maintain price stability and control inflation. The goal of inflation targeting is to keep inflation within a certain range, usually between 2-3%, over the medium term. This helps to ensure that prices remain stable and that the purchasing power of money is not eroded by inflation.
History of Inflation Targeting
Inflation targeting was first introduced in New Zealand in 1989 and has since been adopted by many other countries, including the United Kingdom, Canada, Australia, and the United States. The idea of inflation targeting was first proposed by economist Milton Friedman in the 1950s, but it was not until the 1980s that it began to gain traction. In the 1990s, the International Monetary Fund (IMF) began to promote the use of inflation targeting as a way to reduce inflation and promote economic growth.
Inflation targeting has been widely adopted by central banks around the world as a way to maintain price stability and control inflation. It has been credited with helping to reduce inflation and promote economic growth in many countries. Inflation targeting has also been criticized for its potential to lead to deflationary pressures and for its lack of flexibility in responding to economic shocks.
Table of Comparisons
| Country | Inflation Target |
|---|---|
| United States | 2% |
| United Kingdom | 2% |
| Canada | 2% |
| Australia | 2-3% |
| New Zealand | 1-3% |
Summary
Inflation targeting is an economic policy in which a central bank sets and announces a target inflation rate and then attempts to steer actual inflation towards the target rate through the use of monetary policy. It is a type of monetary policy that is used by central banks to maintain price stability and control inflation. The goal of inflation targeting is to keep inflation within a certain range, usually between 2-3%, over the medium term. This helps to ensure that prices remain stable and that the purchasing power of money is not eroded by inflation.
For more information about inflation targeting, visit the websites of the International Monetary Fund (IMF), the Federal Reserve, and the Bank of England.
See Also
- Monetary Policy
- Interest Rates
- Exchange Rates
- Fiscal Policy
- Price Stability
- Economic Growth
- Deflation
- Central Bank
- Monetary Policy Committee
- Quantitative Easing
