Research AreasFinance, Jobs & MacroeconomicsAlternatives to Inflation Targeting

Alternatives to Inflation Targeting Central Bank Policy for Employment Creation, Poverty Reduction and Sustainable Growth

September 2006

"Inflation targeting"—a monetary policy focused almost exclusively on keeping inflation in the low single digits—has become the operational objective for many central banks around the world. Many economists, international organizations like the IMF, and central bankers have promoted inflation targeting to the exclusion of other concerns. The policy's record has been rather disappointing. After several decades of experience with the inflation focused approach, problems of employment creation and poverty are mounting around the world.

Gerald Epstein of PERI, together with Erinc Yeldan of Bilkent University in Turkey, convened an international team of economists to develop more socially useful alternatives to inflation targeting central bank policy: policies that promote more employment, reduce poverty, and generate economic growth while also keeping inflation moderate and stabilizing the exchange rate. The research collected here provides case studies of country experiences with inflation targeting, as well as studies on the role of gender in monetary policy and inflation’s effects on growth and poverty. Combined, this research forges a new approach to monetary policy, one that makes central banks part of the solution to poverty and unemployment, rather than an important part of the problem. This project was made possibly by the generous support of the Ford Foundation and Rockefeller Brothers' Fund and the United Nations Department of Economic and Social Affairs (UN-DESA).

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The papers from this project have been collected and published in a special issue of International Review of Applied Economics. The journal will be followed by publication of the papers and additional commentary in a book later this year. The special journal issue and book are edited by the project's directors, PERI's Co-Director, Gerald Epstein, and Erinc Yeldan of Bilkent University.

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