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The origins of inflation targeting regime: the science of central banking or the art of central bankers?

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  • Emmanuel Carré

Abstract

The monetary policy regime of inflation targeting was born in 1989 in New Zealand. Inflation targeting has now become the mainstream view in the literature, it has been adopted by more than 25 countries and it is the norm of the International Monetary Fund. Conventional wisdom sees the origins of inflation targeting in the ‘science’ of monetary policy, in particular the problem of time inconsistency. The author recalls the historical origins of this regime in New Zealand and shows that it also results from the broader governmental economic reform based on the Harvard School. Further evidence shows that economic theories have played a limited role in the creation of inflation targeting, which turns out instead to be a pragmatic ‘art’, with little theoretical foundations. Inflation targeting is thus quite special in the history of monetary regimes.

Suggested Citation

  • Emmanuel Carré, 2014. "The origins of inflation targeting regime: the science of central banking or the art of central bankers?," Cahiers d’économie politique / Papers in Political Economy, L'Harmattan, issue 66, pages 127-172.
    • Handle: RePEc:cpo:journl:y:2014:i:66:p:127-172
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    1. Inflation Heresies
      by Dani Rodrik in Project Syndicate on 2022-01-11 09:35:32

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    More about this item

    Keywords

    Inflation targeting regime; New Zealand; time-inconsistency; Harvard business school.;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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