MONETARY STABILITY AND INFLATION TARGETING

ABSTRACT. Mariano and Villanueva note that some discussions on inflation targeting suggest that inflation targeting is an alternative framework to monetary targeting. According to Taylor, a monetary policy rule, at its most basic level, is a contingency plan that lays out how monetary policy decisions are, or should be, made; policy rules turned out to be pretty accurate at predicting future interest rates. Bhattacharya says that country-specific studies indicate that switching to inflation targeting (IT) has sometimes been followed by a dramatic reduction in inflation.