Targeting inflation in Asia and the Pacific: Lessons from the recent past

Abstract

Central banks in Asia and the Pacific have overwhelmingly chosen inflation as the principal objective of monetary policy. Some central banks, but certainly not all, have declared themselves to be explicit inflation targeters, while others pursue their objective without referring to this particular label. The paper starts by documenting differences in inflation dynamics across the region over the past two decades and by exploring whether these differences can be traced to the characteristics of the adopted monetary policy regimes. The paper then investigate inflation developments associated with recent commodity price swings and the international financial crisis and draws some tentative lessons about monetary policy practices in the region. Preliminary results indicate that, on the whole, adoption of inflation targeting per se appears to be less important than the general trend in the region toward greater emphasis on inflation control, suggesting that there is more than one way to skin a cat. The paper concludes by highlighting challenges that central banks in the region are facing.