Inflation Targeting Regime And The Feasibility Analysis

Inflation-targeting policy is a new monetary policy framework in monetary policy field over the past 18 years. Many industrial countries and emerging market countries have adopted Inflation-targeting virtually since the New Zealand Central Bank took the lead in proposing and put it into practice since 1989. The most conspicuous feature of inflation-targeting policy is that it highly unifies the rule rigidity and flexibility, which is called the "flexible decision under restriction". What's more, inflation-targeting framework has been theoretically proved to be time consistent. The public can get the same expectation of the inflation after effective communication with the monetary policy authorities. As a result, the real inflation rate gets close to the expected inflation rate. So dose the real production. Thus the monetary policy can get free of the traditional dilemma.In China, the monetary policy is gradually becoming market-dominated. But there has been serious disadvantage since the money supply was chosen intermediate target of the monetary policy in 1996. So, the central bank needs to establish effective framework and corresponding stimulating & restriction mechanism, so as to make the decision-making and the practice of monetary policy more scientific. The inflation-targeting policy is of great value of reference and consultation for China.Starting from the dispute between rules and discretion, this thesis first analyzes the features of inflation-targeting policy and the mechanism-designing. Then the thesis explores some advantages of the inflation-targeting policy, such as independence, transparency, credibility and dynamic consistency. Finally, the advantageous and disadvantageous conditions for the inflation-targeting policy are analyzed and relative policy advices are put forward. The contribution of the thesis is that it synthetically adopts the traditional optimal approach of monetary policy and the latest mechanism-designing theory. Meanwhile, the writer discusses the new tendency of the central bank independence and corresponding stimulating & restriction mechanism in this thesis.