Targeting inflation in Asia and the Pacific.ppt

Targeting inflation in Asia and the Pacific Andrew Filardo* Hans Genberg** *Bank for International Settlements **Hong Kong Monetary Authority The views expressed are those of the authors and do not necessarily represent those of the Bank for International Settlements or the Hong Kong Monetary Authority. Inflation targeting vs.targeting inflation Inflation performance in the region has been good True for inflation targeting central banks but also for others Targeting inflation is important Inflation objective can be achieved in more ways than one. Agenda A review of policy objectives and strategies of central banks in Asia and the Pacific Evolution of central bank independence and other aspects of governance The inflation record in IT and non-IT economies Inflation rates Inflation persistence Properties of inflation forecasts Effects of the recent commodity price cycle Policy implications Central bank policy objectives Inflation targeting central banks Non-IT central banks Improved governance structures Greater legal and political independence Greater ability to carry out independent exchange rate policy Increased ability to carry out monetary policy independently of fiscal policy Increased transparency and accountability For IT central banks: Greater emphasis on price stability as the primary objective Improved governance, 1996-2005 The inflation record Some more detail Inflation persistence Properties of inflation forecasts Impact of commodity price cycle Inflation persistence Inflation is less persistent in IT economies Smaller AR coefficient Transitory shocks relatively more important Changing AR(1) inflation persistence Changing IMA(1) inflation persistence Properties of inflation forecasts Use Consensus Forecasts to investigate whether: Better central bank governance reduces the dispersion of inflation forecasts Inflation forecasts are more homogeneous in IT economies? The Kullback-Leibler divergence measure Impact of commodity price cycle Summary or e