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Monetary policy for emerging market economies: beyond inflation targeting

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  • Benjamin Friedman

Abstract

Monetary policymakers normally seek to achieve multiple objectives: for prices as well as real economic activity, sometimes for the composition of real activity as well as the aggregate, and often for aspects of the economy's international balance. The fact that monetary policy has only one basic instrument to use therefore creates both complexity and tensions among these objectives. Although inflation targeting represents a way of imposing a logical consistency on monetary policy, in the presence of multiple policy objectives inflation targeting undermines policy transparency and therefore makes accountability more difficult too. Because of the limitation of monetary policy's having only one instrument, but multiple objectives, fiscal policy and prudential supervision and regulation of financial institutions are also important for enabling emerging market economies to achieve their macroeconomic aims.

Suggested Citation

  • Benjamin Friedman, 2008. "Monetary policy for emerging market economies: beyond inflation targeting," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(1), pages 1-12.
    • Handle: RePEc:taf:macfem:v:1:y:2008:i:1:p:1-12
    DOI: 10.1080/17520840801903083
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    References listed on IDEAS

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    1. Sebastian Edwards, 2006. "The Relationship Between Exchange Rates and Inflation Targeting Revisited," NBER Working Papers 12163, National Bureau of Economic Research, Inc.
    2. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters, in: The Inflation-Targeting Debate, pages 249-276, National Bureau of Economic Research, Inc.
    3. Olivier Blanchard & Jordi Galí, 2007. "Real Wage Rigidities and the New Keynesian Model," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(s1), pages 35-65, February.
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    Cited by:

    1. Amidu, Mohammed & Wolfe, Simon, 2013. "The effect of banking market structure on the lending channel: Evidence from emerging markets," Review of Financial Economics, Elsevier, vol. 22(4), pages 146-157.
    2. Metin Ozdemir & Selim Tuzunturk, 2009. "Is price stability enough? Macroeconomic performance of inflation targeting in developing countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 1(4), pages 352-372.
    3. Mohammed Amidu & Simon Wolfe, 2013. "The effect of banking market structure on the lending channel: Evidence from emerging markets," Review of Financial Economics, John Wiley & Sons, vol. 22(4), pages 146-157, November.
    4. Michael Chibba, 2008. "Monetary policy for small emerging market economies: the way forward," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 1(2), pages 299-306.

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