Inflation targeting boosts transparency and effectiveness of monetary policy actions.
The article explores how inflation targeting can help the public understand the Central Bank's future plans. By setting an inflation target, the Central Bank can signal to the public about upcoming changes in inflation and output. This transparency makes the Central Bank's actions, like adjusting interest rates, more effective. The study shows that when the Central Bank uses inflation targeting, changes in interest rates have a bigger impact on inflation compared to when there is no inflation targeting. This means that inflation targeting can help the Central Bank control inflation better.