Interest in inflation targeting waned during the Bretton Woods era (1944–1971), as they were inconsistent with the exchange rate pegs that prevailed during three decades after World War II.
[4][7] The Bank of England's Monetary Policy Committee was given sole responsibility in 1998 for setting interest rates to meet the Government's Retail Prices Index (RPI) inflation target of 2.5%.
[9] If inflation overshoots or undershoots the target by more than 1%, the Governor of the Bank of England is required to write a letter to the Chancellor of the Exchequer explaining why, and how he will remedy the situation.
On that occasion, the Governing Council clarified that "in the pursuit of price stability, it aims to maintain inflation rates below, but close to, 2% over the medium term".
[18] In 2000, Frederic S. Mishkin concluded that "although inflation targeting is not a panacea and may not be appropriate for many emerging market countries, it can be a highly useful monetary policy strategy in a number of them".
CBA believes that it has managed to meet all the preconditions successfully and should concentrate on building a public trust in the new monetary policy regime.
On the other hand, the IMF claims that inflation targeting strategy is good for developing economies, however it requires a lot of information for forecasting.
At the same time, about half of the tightening, 1.25 percentage points, was carried out in 2022 in March, reacting to the high inflation situation formed in the case of unprecedented uncertainties.
[21] Being constantly hit by external shocks to the national economy over the past three years, Armenia is still on the path of recovery thanks to economic management efforts.
Those include improvement of tax compliance, budget process refinement, strengthening the stability of financial sector and most importantly fostering the inflation targeting framework.
[25] In 2012, inflation was expected to fall well below the target, leading the CNB to gradually reduce the level of its basic monetary policy instrument, the 2-week repo rate, until the zero lower bound (actually 0.05 percent) was reached in late 2012.
In light of the threat of a further fall in inflation and possibly even of a protracted period of deflation, on 7 November 2013 the CNB declared an immediate commitment to weaken the exchange rate to the level of 27 Czech korunas per 1 euro (day-on-day weakening by about 5 percent) and to keep the exchange rate from getting stronger than this value until at least the end of 2014 (later on this was changed to the second half of 2016).
[26][27][28] In a historic shift on 25 January 2012, U.S. Federal Reserve Chairman Ben Bernanke set a 2% target inflation rate, bringing the Fed in line with many of the world's other major central banks.
[35] This way, the fed hopes to better anchor longer-term inflation expectations, which they say would foster price stability and moderate long-term interest rates and enhance the Committee's ability to promote maximum employment in the face of significant economic disturbances.
On the basis of asymptotical unbiasedness, a moderated version of the rational expectations hypothesis can be suggested in which familiarity with the theoretical parameters is not a requirement for the relevant model.
An agent with access to sufficiently vast, quality information and high-level methodological skills could specify its own quasi-relevant model describing a specific macroeconomic system.
Also, as a result of better inflation control and stability of economic growth, investors may more easily factor in likely interest rate changes into their investment decisions.
Central banks in developed countries that have successfully implemented inflation targeting tend to "maintain regular channels of communication with the public".
[44] Although it was not an inflation-targeting country until January 2012, up until then, the United States' "Statement on Longer-Run Goals and Monetary Policy Strategy" enumerated the benefits of clear communication—it "facilitates well-informed decisionmaking by households and businesses, reduces economic and financial uncertainty, increases the effectiveness of monetary policy, and enhances transparency and accountability, which are essential in a democratic society".
[19] An econometric analysis found that although inflation targeting results in higher economic growth, it does not necessarily guarantee stability based on their study of 36 emerging economies from 1979 to 2009.
[48] In a 2012 op-ed, University of Nottingham economist Mohammed Farhaan Iqbal suggested that inflation targeting "evidently passed away in September 2008", referencing the 2007–2008 financial crisis.
[54] In an article written since the COVID-19 pandemic, critics have pointed out that the Bank of Canada’s inflation-targeting has had unintended consequences, with persistently low interest rates over the last 12 years fuelling an increase in home prices by encouraging borrowing; and contributing to wealth inequalities by supporting higher equity values.
However, policymakers feel the drawbacks are outweighed by the fact that a positive inflation target reduces the chance of an economy falling into a period of deflation.
[56][57] Andrew Atkeson and Patrick J. Kehoe wrote, Effectively, Friedman was arguing for a negative (moderately deflationary) inflation target.