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An Australian perspective on inflation targeting, communication and transparency

Authors
Disciplines
  • Communication
  • Design
  • Economics

Abstract

An Australian perspective on inflation targeting, communication and transparency - BIS Papers No 31, December 2006. BIS Papers No 31 3 An Australian perspective on inflation targeting, communication and transparency Malcolm Edey 1. Introduction When countries began to adopt inflation targets more than a decade ago, their aim was to put in place a credible framework that avoided the drawbacks of previous policy regimes. In New Zealand, Canada and Australia, inflation targets replaced ad hoc regimes that were considered intellectually unsatisfactory and had been associated with periods of poor inflation performance. In the United Kingdom and Sweden, inflation targeting replaced failed exchange rate pegs. In each case, the designers of the new targets sought a balance between constraining the central bank in terms of policy outcomes, and allowing a realistic degree of flexibility in the setting of the policy instrument. Kuttner (2004) notes that, even at this early stage, there was no single model as to how this balance should be achieved. Target specifications differed in a number of ways, including the inflation goal itself, the degree of flexibility they allowed for inflation to vary, and the exact accountability and communication arrangements that were put in place. Australia’s targeting regime could be characterised as being at the flexible end of the spectrum, while those of New Zealand and the United Kingdom, in their initial formulations, were at the more tightly specified end. Subsequent adopters have continued to be spread out along this range. This paper provides a perspective on Australia’s experience as a flexible inflation targeter. It first reviews the historical background to Australia’s adoption of inflation targeting. It then compares Australia’s communication practices with those of other central banks in order to bring out the similarities and differences in current approaches. Finally, it looks in more detail at the role of inflati

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