. Inflationary expectations in New Zealand fell to the lowest level ever recorded. There is broad public acceptance of the RBNZ’s pricestabilitygoal. Both major political parties subscribe to it.
In managing financial markets, the RBNZ handled the challenges of deregulation and the “Crash of ’87” well. No registered banks failed. 13/ Interbank settlement and financial markets functioned smoothly. Liquidity forecasting became increasingly accurate. Volatility in domestic money markets and foreign exchange markets dropped markedly. Foreign reserves were effectively and
durable commitment to a central bank’s pricestabilitygoal. There may perhaps be some financial stability issues—especially when issuing foreign currency (denominated or linked) debt in the form of negotiable securities—but a sense of perspective is important here as well. For countries with serious credibility problems, it is often practically impossible to issue anything other than foreign currency debt for reasonable terms. Delivering low inflation will provide an increased range of debt management options, but debt management choices (other than outright central
This comment on Mark Stone’s paper, “Inflation Targeting Lite,” is from the perspective of the Polish economy. Three arguments justify such an approach. First, in the late 1990s, Poland could well have been classified as an Inflation Targeting Lite (ITL) country. Second, the shape of Poland’s monetary policy and the experience of its economy effectively illustrate several points made by Stone. And third, the evolution of Polish monetary policy provides an excellent example of successful transition from ITL to Full-Fledged Inflation Targeting (FFIT).
Financial globalization, or the increased integration of global financial markets, raises important, new challenges for central banks. What nominal anchor is appropriate for countries susceptible to shifts in capital flows? How to prevent financial crises, or deal with them decisively when they unfold in real time? And how to think about difficult choices when monetary and financial stability objectives are at odds with each other?
A growing number of emerging market countries are requesting technical assistance from the Fund to help them adopt an inflation-targeting monetary framework. In recent years, the adoption of formal inflation targeting monetary frameworks has widened from industrial countries to emerging market countries such as Brazil, Chile, Colombia, the Czech Republic, Hungary, Israel, Korea, Mexico, the Philippines, Poland, South Africa, and Thailand.2 Many other emerging market countries, such as Peru and Turkey, are also moving toward this framework. The challenges facing industrial countries are relatively well understood, owing to their comparatively long experience in inflation targeting. They benefit from well-developed financial markets, and they are experienced in using indirect, market-based instruments for implementing monetary policy.3 But emerging market countries confront challenges that are less well understood.