Inflation Targeting as a Monetary Policy Framework: A Critical Appraisal

Abstract

Inflation targeting has been adopted as a monetary policy framework by many economies – particularly emerging and advanced countries. Although several researchers have argued that it is a recommended policy measure to curb inflation in a prospectively high inflation-saddled economy, other scholars think otherwise. A critical review of the arguments for and against inflation targeting as a tool of ensuring price stability in presented in this paper. Accordingly, the paper points out that the targeting framework has been established and proven effective in several countries, but it is arguably not satisfactory enough. The paper recommends that a realistically attainable percentage – usually a flexible target range and a time-lag for achieving the target should be set. This is because over-ambitiousness on the part of monetary authorities can invariably lower the economic prestige, credibility and monetary policy independence of a country particularly if the set-target becomes unattainable. Notwithstanding, developing countries need to create an enabling environment in terms of strong financial markets and commitment to price stability alongside establishing a well-developed forecasting framework in order to reach the desired effects of inflation targeting .

a cultural studies and critical pedagogy perspectives.