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Evaluating Experiences of Developing Countries Moving Towards Inflation Targeting: A Lesson Learning for Pakistan

Author

Listed:
  • Muhammad Arif

    (Khadim Ali Shah Bukhari Institute of Technology, Karachi.)

Abstract

The main aim of this paper is to investigate how far State Bank of Pakistan is prepared enough to undertake its monetary policy operations - right from its operational target (Reserve Money) to mid term target (M2) and ultimate target CPI (consumer price index) and Real GDP (Gross Domestic product) growth) by choosing numbers of inflation sets for its annual target. In the paper three examples from Chile, Turkey and Mauritius, have been used who have adopted the system, as they seem more close to Pakistan as a developing nation. Up till 2005, SBP was using monetary aggregate as for its operational target i.e. Reserve Money, However onward, it has started using corridor arrangement where discount rate the main interest rate for Pakistan serves as ceiling for the corridor and floor is set at 300 bp below this rate. Accordingly, market is allowed to move its overnight rate within the corridor of 300 bp. In this way Pakistan has now moved from aggregate targeting to inertest rate targeting. Initially this arrangement was implicit but from 2009 onward, it has gone with this arrangement explicitly. Going forward as one would see that adoption of inflation target right from the basis is a step toward right direction, but yet Pakistan is not prepared enough to adopt inflation targeting as its operational target.

Suggested Citation

  • Muhammad Arif, 2011. "Evaluating Experiences of Developing Countries Moving Towards Inflation Targeting: A Lesson Learning for Pakistan," Indus Journal of Management & Social Science (IJMSS), Department of Business Administration, vol. 5(1), pages 45-59, June.
    • Handle: RePEc:iih:journl:v:5:y:2011:i:1:p:45-59
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    File URL: http://indus.edu.pk/RePEc/iih/journl/5-Arif-MovingTowardsInflationTargeting-TheCaseofPakistanF1.-0.pdf
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    References listed on IDEAS

    as
    1. Guy Debelle & Miguel A Savastano & Paul R Masson & Sunil Sharma, 1998. "Inflation Targeting as a Framework for Monetary Policy," IMF Economic Issues 15, International Monetary Fund.
    2. Guy Debelle & Mr. Miguel A Savastano & Mr. Paul R Masson & Mr. Sunil Sharma, 1998. "Inflation Targeting as a Framework for Monetary Policy," IMF Economic Issues 1998/005, International Monetary Fund.
    3. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346, January.
    4. Paul R. Masson & Miguel A. Savastano & Sunil Sharma, 2019. "The Scope for Inflation Targeting in Developing Countries," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 10, pages 331-383, World Scientific Publishing Co. Pte. Ltd..
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Inflation; Chile; Mauritius; Turkey; Pakistan;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E64 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Incomes Policy; Price Policy

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