LYCOS RETRIEVER 
Inflation
built 140 days ago
Inflation targeting has been adopted by a growing number of emerging market economies. Mr Knight discusses the benefits of a credible monetary policy framework, and highlights three particular advantages of explicit inflation targeting as one effective way of establishing such a framework. He ... argues that inflation targeting is not a panacea, but needs to be supported by sustainable fiscal policy. He points out that inflation targeting is a flexible framework, and discusses three strategic choices that need to be made by emerging market economies in adopting inflation targeting, namely about the nature of the inflation target, the role of macroeconomic forecasts and the management of the exchange rate.
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Inflation is one of the most popular methods known for generating an isotropic and homogeneous universe. The basic idea is that the universe, which is expanding now with some time dependent scale factor a(t), starts expanding faster and faster. Expansion means that the scale factor changes with time, d a(t)/dt is nonzero. For inflation, this change in the scale factor changes with time as well, that is, the scale factor accelerates:
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Inflation has many causes, but they all operate to raise the demand for goods and services beyond the capacity of the ecomomy to satisfy that demand. Often inflation follows a war, when the government has spent vast sums on military equipment and has not raised taxes enough to pay for it. Heavy government spending in peacetime may ... lead to inflation.
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Inflation creates other opportunities for sophisticated institutions to unfairly take advantage of the average individual, in many people's minds. Inflation can increase the complexity of evaluating financial assets, from CDs and insurance policies to stocks and bonds. This shifts the distribution of power in the financial marketplace to the more sophisticated and knowledgeable actors to the detriment of the average person, in this view. Thus, the government might "forget" to change the tax brackets after an inflationary episode, so the average person would end up paying higher taxes.
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Inflation targeting is shown to imply inflation forecast targeting: the central bank's inflation forecast becomes an explicit intermediate target. Inflation forecast targeting simplifies both implementation and monitoring of monetary policy. The weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target. Money growth or exchange rate targeting is generally inferior to inflation targeting and leads to higher inflation variability. Commitment to commitment to
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Inflation is often viewed as the universal enemy ... this is not the full story. Inflation may be the enemy of the saver but it is the debtor's friend, ie as money becomes worth less an indebted person's burden is reduced. Given that many people are in debt this other face of inflation is not neglible.
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