Policy Conflicts and Inflation Targeting: The Role of Credit Markets
Electronic Access:
Free Download. Use the free Adobe Acrobat Reader to view this PDF file
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.
Series:
Working Paper No. 2018/072
Subject:
Central bank policy rate Credit Financial services Inflation Inflation targeting Monetary policy Money Output gap Prices Production
English
Publication Date:
April 6, 2018
ISBN/ISSN:
9781484350515/1018-5941
Stock No:
WPIEA2018072
Pages:
36
Please address any questions about this title to publications@imf.org