What is inflation targeting and how did it start?

What is inflation targeting and how did it start?

Inflation targeting is a monetary policy strategy where a central bank aims to keep inflation within a specified range. It began in the late 20th century, with New Zealand being the first to adopt it in 1989.

Why did New Zealand choose to implement inflation targeting?

New Zealand implemented inflation targeting to stabilize its economy after facing high inflation rates in the 1980s. It aimed to provide a clear framework for monetary policy and enhance transparency.

What were the effects of inflation targeting on the economy?

Inflation targeting generally led to lower inflation rates and increased economic stability. It helped central banks manage expectations and improve credibility.

Which countries followed New Zealand's lead in inflation targeting?

Countries like Canada, the UK, and Sweden adopted inflation targeting in the 1990s, inspired by New Zealand's success.

Are there any criticisms of inflation targeting?

Yes, some critics argue that inflation targeting can be too rigid, potentially neglecting other important economic factors like employment and growth.