{
  "title": "A Model for Full-Fledged Inflation Targeting and Application to Ghana",
  "publication": "IMF Working Papers, January 1, 2010",
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  "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 a",
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      "heading": "Summary findings",
      "content": "- A model in which monetary policy pursues full-fledged inflation targeting adapts well to Ghana.\n- Model features include:\n  - endogenous policy credibility;\n  - non-linearities in the inflation process;\n  - 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.\n- The optimal approach from initial high inflation to the ultimate target is gradual; and transitional inflation-reduction objectives are flexible.\n- Over time, as policy earns credibility:\n  - expectations of inflation converge towards the long-run target;\n  - the output-inflation variability tradeoff improves;\n  - optimal policy responses to shocks moderate."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Adopt full-fledged inflation targeting with attention to building endogenous policy credibility.\n- Account for non-linearities in the inflation process when designing policy rules.\n- Use a policy loss function that balances:\n  - variability of output;\n  - variability of the interest rate;\n  - deviations of inflation from the long-term low-inflation target.\n- Follow a gradual strategy from high initial inflation toward the long-run target, allowing flexibility in transitional inflation-reduction objectives.\n- As credibility is established, reduce the aggressiveness of policy responses to shocks in line with improved output-inflation tradeoffs."
    },
    {
      "heading": "Application to Ghana",
      "content": "- The model framework is presented as well-suited for Ghana given the features listed above (endogenous credibility, non-linear inflation dynamics, and a multi-objective loss function).\n- Emphasis on gradual transition paths and flexible interim targets is highlighted as optimal in the Ghanaian context.\n- Expected dynamics under successful implementation:\n  - convergence of inflation expectations to the long-run target;\n  - improved tradeoffs between output variability and inflation variability;\n  - moderated optimal policy responses to shocks.\n\n---\n\n Content in this bundle\n\n- wp1025\n  - wp1025 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp1025 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/31/a-model-for-full-fledged-inflation-targeting-and-application-to-ghana-23574"
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    "[Markdown version](/en/publications/wp/issues/2016/12/31/a-model-for-full-fledged-inflation-targeting-and-application-to-ghana-23574/index.md)",
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    "Authors: Kevin Clinton, Jihad Dagher, Ondrej Kamenik, Douglas Laxton, Ali Alichi, Marshall Mills",
    "Published: January 1, 2010",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451962444.001",
    "A model in which monetary policy pursues full-fledged inflation targeting adapts well to Ghana.",
    "Model features include:",
    "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:",
    "Adopt full-fledged inflation targeting with attention to building endogenous policy credibility.",
    "Account for non-linearities in the inflation process when designing policy rules.",
    "Use a policy loss function that balances:",
    "Follow a gradual strategy from high initial inflation toward the long-run target, allowing flexibility in transitional inflation-reduction objectives.",
    "As credibility is established, reduce the aggressiveness of policy responses to shocks in line with improved output-inflation tradeoffs.",
    "The model framework is presented as well-suited for Ghana given the features listed above (endogenous credibility, non-linear inflation dynamics, and a multi-objective loss function).",
    "Emphasis on gradual transition paths and flexible interim targets is highlighted as optimal in the Ghanaian context.",
    "Expected dynamics under successful implementation:",
    "**_wp1025**"
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