Correlation between Central Bank Independence and Inflation in OECD Countries (1962-1990)

Evaluating an Inflation-Targeting Framework

Consider two hypothetical countries. In Country A, the government sets a permanent inflation goal and grants the central bank full autonomy to use its policy tools to meet this goal. In Country B, the government frequently revises the inflation goal for political reasons, and the central bank's major policy decisions require approval from the finance ministry. Based on the principles of a successful monetary policy framework, what is the most likely long-term outcome for inflation in these two countries?

In a country with an inflation-targeting framework, if the central bank is given full authority to act but the government frequently changes the inflation target to suit short-term economic goals, inflation will still reliably converge to the most recently announced target over the long term.

Analyzing a Successful Inflation-Targeting Policy

Diagnosing a Failing Inflation-Targeting Framework