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The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.

This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.

The purpose of this paper is to examine the impact of inflation targeting on inflation for 27 countries that have adopted an inflation‐targeting regime.

The paper uses intervention analysis in Harvey's structural time series model to analyse the impact of inflation targeting on inflation, using quarterly observations. This approach provides the most useful framework for separating changes that occur to a series ordinarily over time from those happening due to exogenous events identified a priori, such as inflation targeting.

The empirical evidence suggests that almost all of the central banks that have pursued this strategy have been unsuccessful at controlling inflation, with the results indicating that the adoption of an inflation‐targeting regime has had the perverse effect on inflation for almost every country.

The implication of the finding is that central banks which have adopted an inflation‐targeting regime do not appear to have been particularly successful in reducing inflation in any significant way, as is regularly claimed in the extant literature.

The paper provides further evidence against the adoption of an inflation‐targeting regime using an unconventional approach for 27 countries that are regarded as “fully‐fledged” inflation‐targeting countries.

The purpose of this paper is to present a theoretical model and empirically verifies the transmission of monetary policy through the credit channel in Brazil. The study verifies if the monetary policy, the economic activity and the maturity of the inflation targeting regime affect the supply of credit.

The paper offers a review of the literature concerning inflation targeting credibility and the transmission mechanism of monetary policy through the credit channel, it develops a theoretical model based on Bernanke and Blinder and Ferreira and it seeks empirical evidence for the Brazilian economy using ordinary least squares, generalized method of moments and vector autoregressive.

The estimates indicate that the supply of credit is stimulated when the economy heats up, when the monetary authority reduces the interest rate and when the credibility increases. The evidence also indicate that the supply of credit is affected by the variables of the model, economic activity and employment are affected by monetary policy and the supply of credit exerts influence on both employment and output gap.

An important implication of this study is that, in inflation targeting emerging economies, such as that of Brazil, following a committed monetary policy to price stability which increases the credibility of the regime of inflation targeting and promoting macroeconomic stability represents a good strategy for improving the volume of lending to the private sector, thus stimulating economic activity and employment. What the findings do indicate is that developing credibility is crucial for emerging economies that are trying to grow, but with inflation being kept under control.

The paper presents the following theoretical and empirical contributions: the model incorporates the effect that the credibility of the inflation targeting regime has on the supply of credit and, the econometric approach provides evidence that the monetary policy, the economic activity and the process of anchoring of inflation expectations affect the supply of credit in Brazil. Moreover, the paper finds evidence that the credit channel acts as a transmission mechanism of monetary policy to the economy.

The purpose of this paper is to evaluate threshold effects in the persistence of South African aggregate inflation data.

The conventional approach for assessing the degree of persistence within an inflation process is via its integration properties. This study makes use of univariate threshold autoregressive (TAR) models and associated unit root testing procedures to investigate the integration properties of the inflation data. Out‐of‐sample forecasts are further performed for the TAR models and their linear counterparts.

The empirical results confirm threshold effects in the persistence of all employed aggregated measures of inflation, whereas such asymmetric effects are ambiguous for disaggregated inflation measures. None of the observed series is found to be stationary in their levels. The out‐of‐sample forecasts for all TAR models outperform their linear counterparts.

Given the scope of the study, the empirical analysis provides insight with concern to the performance of inflation subsequent to the adoption of the inflation target regime in South Africa. Of particular interest are the low persistence levels observed at inflation rates of below 4.7 and 4.4 percent for core and CPI inflation, respectively, as both these aggregated measures of inflation play an essential role in guiding monetary policy conduct within the economy. The overall findings imply that on an aggregate level, the South African Reserve Bank's (SARB's) current inflation target of 3‐6 percent encompasses a non‐stationary inflation range and thus proves to be restrictive on monetary policy conduct.

The paper fills in an important gap in the academic literature by evaluating asymmetric effects in the integration properties of inflation, at both aggregated and disaggregated levels, for the exclusive case of South Africa.

The purpose of this paper is to investigate the optimal inflation targets for an appropriate exchange rate policy in 15 major oil exporting countries in Sub-Saharan African (SSA).

Dynamic heterogeneous panel threshold techniques are used via threshold-effect test and threshold regression. This procedure is achieved through a grid search and bootstrapping replications method to stimulate the asymptotic distribution of the likelihood ratio test of the null hypothesis on no-threshold as against the alternative hypothesis. The p-values validate the threshold estimates.

Findings revealed that the optimal inflation target has a turning point and its impact on the real exchange rate is up to a threshold level of 14.47 per cent. Furthermore, the inflation rate above the threshold level overwhelmingly revealed its effect on real exchange regimes.

It would have been a good idea to investigate optimal inflation targets for all African countries but due to inadequate data the selection criteria was narrowed to oil-exporting countries in Sub-Saharan Africa.

Inflation targeting beyond the threshold level would have serious implications on the monetary policy.

To the best of the knowledge, this is the first study to look at optimal inflation targets for 15 major oil exporting countries in general and SSA countries in particular. The findings provide a critical analysis of an inflation regime for a typical oil-producing country that oil exports being their source of revenue.

The purpose of this paper is to explore whether India is a suitable candidate for an inflation targeting regime. It begins by placing India's monetary policy actions in a broader context by discussing whether the Reserve Bank of India (RBI) should shift from its current policy of heavily managed exchange rates to one involving greater currency flexibility. If the latter is chosen, the selection of inflation targeting would appear an appropriate one.

This paper has analytical, empirical and policy dimensions. Given the recent history of exchange rate centered policy in India, a discussion of the role of the exchange rate is needed. This is presented by the use of an analytical model where we examine how inflation targeting might work with the exchange rate. Then the decision rule from the model (a monetary policy rule (MPR)) is adapted for empirical testing and is estimated to investigate whether an MPR that follows inflation targeting can work for India.

There is some evidence to suggest that the RBI follows an MPR quite inadvertently. The MPR (interest rates) tends to react to current inflation, but there is no evidence that it reacts to forecasts of inflation. Additionally, interest rates do not react at all to the exchange rate.

The RBI's operating policy framework and whether it should adopt an inflation targeting arrangement is a highly topical issue that has attracted a great deal of attention in policy discussions in India. Very few papers broach this topic systematically and combine the analytical and empirical considerations.

The article aims to establish whether the degree of aversion to inflation and the responsiveness to deviations from potential output have changed over time.

This paper assesses time variation in monetary policy rules by applying a time-varying parameter generalised methods of moments (TVP-GMM) framework.

Using monthly data until December 2022 for five inflation targeting countries (the UK, Canada, Australia, New Zealand, Sweden) and five countries with alternative monetary regimes (the US, Japan, Denmark, the Euro Area, Switzerland), we find that monetary policy has become more averse to inflation and more responsive to the output gap in both sets of countries over time. In particular, there has been a clear shift in inflation targeting countries towards a more hawkish stance on inflation since the adoption of this regime and a greater response to both inflation and the output gap in most countries after the global financial crisis, which indicates a stronger reliance on monetary rules to stabilise the economy in recent years. It also appears that inflation targeting countries pay greater attention to the exchange rate pass-through channel when setting interest rates. Finally, monetary surprises do not seem to be an important determinant of the evolution over time of the Taylor rule parameters, which suggests a high degree of monetary policy transparency in the countries under examination.

It provides new evidence on changes over time in monetary policy rules.

Inflation targeting has increasingly become a popular monetary framework since its first introduction in New Zealand at the beginning of 1990. However, the causality effects of this policy on economic performance, particularly in periods of economic turmoil remain controversial. Thus, this paper re-examines the treatment effect of inflation targeting on two important macro indicators which are inflation rate and output growth with the focus on emerging market economies. The global financial crisis, which is known as the great recession since the last decade, is investigated as an exogenous shock to test for the effectiveness of this popular regime.

The difference-in-difference approach in the fixed-model is employed for this investigation using a balanced panel data of 54 countries with 15 inflation-targeting countries for the period 2002 to 2010.

The examination finds that there is no significant difference in terms of the inflation rate and gross domestic product growth over the whole research period between the treatment and control groups. However, the outcome suggests that emerging economies can control the increase in inflation rate when the economy has to cope with the exogenous uncertainties.

This finding indicates important policy implications for central banks in many countries.

Inflation targeting can help emerging countries to reduce an increase in inflation rate in the crisis period without many trade-offs in the growth of output.