Research AreasFinance, Jobs & MacroeconomicsAlternatives to Inflation TargetingAbout Alternatives to Inflation Targeting

About the Project

An International Research Project Directed by


Gerald Epstein
Professor of Economics
and PERI Co-Director
UMass, Amherst
Amherst, MA, USA


Erinc Yeldan
Professor of Economics
and IDEAS Board Member
Bilkent University
Ankara, Turkey

"Inflation targeting"—an almost exclusive focus by monetary policy on keeping inflation in the low single digits—has become the operational objective for many central banks around the world. By recent count, twenty-three countries had adopted inflation targeting as of 2006 and more are on the way. Many economists, international organizations such as the IMF, and numerous central bankers have promoted inflation targeting. This focus on inflation by central banks to the exclusion of other concerns such as employment creation and poverty reduction comes at a critical time as these problems are growing around the world. The International Labor Office (ILO) estimates that in 2003, approximately 186 million people were jobless, the highest level ever recorded. In addition, IMF economists estimate that economic growth needs to be sustained at 7% per year or more to reach the millennium development goal of reducing poverty by half by 2015, but with an exclusive focus on reducing inflation, this level of economic growth is very unlikely to be achieved.

Indeed, after several decades of experience with this inflation focused approach, the policy record has been rather disappointing for many countries. In a number of countries, inflation has come down, to be sure, but it is not clear to what extent the drop in inflation is due to changes in domestic monetary policy, rather than the overall global fall in inflation. But even if domestic monetary policy has reduced inflation, the hoped for gains in employment have, generally, NOT materialized; and, for many countries following this orthodox approach, economic growth has not significantly increased.

It is time for a new approach to monetary policy, one that makes central banks part of the solution to global poverty and unemployment, rather than an important part of the problem. For the past two years, Gerald Epstein of PERI and Erinc Yeldan of Bilkent University in Turkey has organized an international team of economists have analyzed more socially useful alternatives to inflation targeting central bank policy, policies that can help promote more employment, reduce poverty, and generate more economic growth, while at the same time maintain a moderate level of inflation and stabilize the exchange rate. These economists have written country studies on Argentina, Brazil, India, Mexico, The Philippines, Turkey, Vietnam, and South Africa, studies that analyze the current state of central bank policy in these countries and, more importantly, to develop an alternative framework for central bank policy that will be much better than inflation targeting in terms of employment creation and poverty reduction, while at the same time maintaining economic stability. The project also includes a number of thematic papers as well, including a study of the gender impacts of monetary policy, inflation and poverty, and the impact of inflation on economic growth. We expect that the project papers, posted as they are finished below, will be published in an edited volume and also in a special issue of an economic journal.

The project was made possible by generous grants from the Ford Foundation, The Rockefeller Brothers Fund, The United Nations Department of Economic and Social Affairs (UN-DESA).

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