Monetary Policies and Inflation Targeting in Emerging Economies

Inflation targeting (IT) is an economic policy in which a country's central bank sets a target inflation rate, then raises or lowers interest rates accordingly to achieve and maintain that level of inflation. This volume looks at the experiences of six emerging-market economies that use inflation targeting —Brazil, Chile, Czech Republic, Indonesia, South Africa, and Turkey. Although the economic circumstances under which IT was put in place vary considerably among these countries, there are some common lessons and policy challenges for all. IT appears to be a generally effective policy, although it is not easy to ascertain the extent of change in macroeconomic performance due solely to its adoption. Inflation targeting is often a part of broader structural reform, and global economic conditions that affect countries using IT may simply be beyond the control of policymakers in individual nations. Still, there is fairly compelling evidence for some of these countries that inflation has become less volatile and persistent in the post-IT period, interest rates have become less volatile, and inflation expectations have been more responsive to monetary policy moves.