Inflation targeting (IT) is a framework for the conduct of monetary policy, under which the monetary authority announces a medium- or long-run inflation target and then uses all available information to set its policy instrument, the short-term nominal interest rate, so that this target is met. Short-lived deviations from the inflationary target may be acceptable, especially when there may be a short-run trade-off between meeting the target and another welfare consideration, for example, the output gap—the difference between actual and potential output. Hence, although the central bank commits to meeting a certain inflationary target, in practice, IT takes a less rigid form, with the central bank exercising some discretion over the path of actual inflation toward ...
Monetary Policy and Inflation Targeting
Monetary policy and inflation targeting