Towards a New Monetary-Macroprudential Policy Framework: Perspectives on Integrated Inflation Targeting: A Discussion

Inflation targeting is in vogue in emerging markets. Why is clear to see. Inflation targeting as currently practised has its limitations, but it is the “least-worst alternative” for central banks requiring a monetary anchor. And every central bank requires a monetary anchor. Exchange rate pegs are fragile, especially in the presence of an open capital account, where emerging markets as a class are moving in the direction of greater capital-account openness. Monetary targets are unreliable, as historical experience has amply shown. However, having no anchor or well-articulated monetary policy strategy is not a viable option. So a growing number of central banks are led to some variant of inflation targeting by process of elimination…