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Can inflation targeting mitigate monetary policy time-inconsistency?

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  • Gabriel Caldas Montes

    (Department of Economics, Fluminense Federal University Rio de Janeiro, Brazil)

Abstract

Although the adoption of inflation targeting can, on average, bring benefits to developing countries, however, adopting this scheme is not necessarily sufficient to mitigate the time-inconsistency problem of monetary policy. The present paper makes use of two theoretical models in order to analyze for the Brazilian case whether it is possible for the monetary authority to conduct time-inconsistent monetary policies even under inflation targeting. The results obtained for Brazil allow one to conjecture that the traditional argument that the adoption of inflation targeting can avoid the time-inconsistency problem is not necessarily true.

Suggested Citation

  • Gabriel Caldas Montes, 2014. "Can inflation targeting mitigate monetary policy time-inconsistency?," Journal of Economic and Financial Studies (JEFS), LAR Center Press, vol. 2(2), pages 15-25, April.
    • Handle: RePEc:lrc:lareco:v:2:y:2014:i:2:p:15-25
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    References listed on IDEAS

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    More about this item

    Keywords

    Cointegration; Monetary policy; Inflation targeting time-inconsistency.;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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