Policy Conflicts and Inflation Targeting: The Role of Credit Markets

April 6, 2018

Preview Citation

Format: Chicago

Woon Gyu Choi, and David Cook. Policy Conflicts and Inflation Targeting: The Role of Credit Markets, (USA: International Monetary Fund, 2018) accessed September 19, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper shows that stabilizing volatility in credit growth often conflicts with price stability: unusual credit expansions often occur when inflation is low relative to goals, and credit slumps often appear when inflation is overshooting. We find that central banks with inflation targeting (IT) are responsive to credit conditions in both advanced economies and emerging-market economies (EMEs). However, EMEs are more sensitive to inflation conditions, responding to credit growth only when consistent with IT. Macroprudential measures are also deployed to address credit growth volatility when orthodox policy moves would be inconsistent with IT, complementing monetary policy.

Subject: Central bank policy rate, Credit, Financial services, Inflation, Inflation targeting, Monetary policy, Money, Output gap, Prices, Production

Keywords: Africa, Business cycle, Central bank policy rate, Coefficient estimate, Core inflation rate, Credit, Credit Growth, Exchange rate, Global, Inflation, Inflation gap, Inflation Targeting, Macroprudential Policy, Output gap, Policy Conflicts, Taylor rule, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/072
Stock No:

WPIEA2018072
ISBN:

9781484350515
ISSN:

1018-5941

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