Inflation Targeting

This paper investigates the meaning of the bottom of target bands in inflation targeting regimes. It is argued that the design of lower limits on target bands, if not done with care, can lead to a lack of transparency, potentially confusing markets about how the authorities will react to a fall in inflation. After first discussing the conceptual issues, the paper then examines the experience with target bands in New Zealand, Israel and Canada and explores how the conceptual issues have played out in practice.Inflation targeting;inflation, monetary policy, inflation target, price stability, central bank, monetary fund, rate of inflation, inflation rate, low inflation, inflationary expectations, fall in inflation, monetary authorities, monetary framework, inflation objective, monetary aggregate, monetary policy rule, inflation targeting framework, lower inflation, high inflation, monetary policy framework, monetary stability, monetary frameworks, monetary policy strategies, average rate of inflation, monetary instruments, inflation targeting regime, real interest rate, inflation observations, reduction in inflation, monetary policy operations, real interest rates, rise in inflation, inflationary pressures, inflation performance