Implications and Relevance
Edited by Phillip Arestis, Michelle Baddeley and John S.L. McCombie
Chapter 10: The experience of inflation targeting since 1993
10. The experience of inﬂation targeting since 1993 Charles Goodhart 1. A SUCCESSFUL AND STABLE OUTCOME Since 1993 the economy has remained on a very stable, and relatively successful, trajectory. The main feature of an inﬂation-targeting monetary regime is, of course, the achievement of that target. This has been successfully maintained, as shown in Figure 10.1. Meanwhile growth has remained consistent, with no quarter of negative growth since 1993. Moreover, the ﬂuctuations in the growth rate in these last 11 years have been considerably lower than previously, with a marked reduction in the scale of cyclical ﬂuctuations, as shown in Figure 10.2. Meanwhile unemployment has been steadily % 10 9 8 7 6 5 4 3 2 1 0 85 87 89 91 93 Year 95 97 99 01 Figure 10.1 Annual RPIX 164 Inﬂation targeting since 1993 165 % 3.0 2.5 2.0 1.5 1.0 0.5 0.0 –0.5 –1.0 –1.5 –2.0 85 87 89 91 93 95 Year 97 99 01 Quarterly growth (LHS) Annual growth (RHS) 6% 5 4 3 2 1 0 –1 –2 –3 –4 Figure 10.2 Real GDP growth declining. The only ﬂy in the ointment has been that the rate of growth of productivity per head has not matched the increases recently shown in the USA, and has, indeed, been slightly below the previous, and subsequently expected, average over time. Yet this general economic stability was achieved without having to vary the main instrument of demand management, to wit interest rates, very...
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