A Model for Full-Fledged Inflation Targeting and Application to Ghana

Author/Editor: Alichi, Ali ; Clinton, Kevin ; Dagher, Jihad ; Kamenik, Ondra ; Laxton, Douglas ; Mills, Marshall
Publication Date: January 01, 2010
Electronic Access: Free Full text (PDF file size is 1,016KB).
Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate
Summary: A model in which monetary policy pursues full-fledged inflation targeting adapts well to Ghana. Model features include: endogenous policy credibility; non-linearities in the inflation process; and a policy loss function that aims to minimize the variability of output and the interest rate, as well as deviations of inflation from the long-term low-inflation target. The optimal approach from initial high inflation to the ultimate target is gradual; and transitional inflation-reduction objectives are flexible. Over time, as policy earns credibility, expectations of inflation converge towards the long-run target, the output-inflation variability tradeoff improves, and optimal policy responses to shocks moderate.
Series: Working Paper No. 10/25
Subject(s): Central banks | Disinflation | Economic models | External shocks | Ghana | Inflation rates | Inflation targeting | Low-income developing countries | Monetary policy | Public information | Transparency

Publication Date: January 01, 2010
Format: Paper
Stock No: WPIEA2010025 Pages: 30
US$18.00 (Academic Rate:
US$18.00 )
Please address any questions about this title to publications@imf.org