A recent speech on the merits of a flexible inflation targetting framework reads like one any member of the current UK MPC could have given.
Understandably, central bankers prefer to let them burst in their own good time.* "Asset Prices in a Flexible Inflation Targeting Framework", by S. Cecchetti, H. Genberg and S. Wadhwani.
Some countries have adopted a flexible inflation targeting framework, while others have pursued exchange rate targeting.
While there is some comovement of term premia with the US, the dominant effect seems to be domestic monetary policy, which may well be due to the inflation targeting framework employed by the central banks in all four countries.
"The flexible inflation-targeting framework should remain broadly in place, but details need to be reviewed and could be changed," he told MPs.
Initially, this is likely to focus on adopting a more flexible inflation-targeting framework, which could include providing more "forward guidance" on the future path of monetary policy (for example, an explicit commitment that rates would remain at 0.5% for a stated duration) and/or threshold rules similar to those recently adopted by the US Federal Reserve.
The bank, which must at least be operationally independent, is then responsible for achieving these targets and must provide regular public information about its strategy and decisions.Among emerging markets, Brazil has the most technically sophisticated inflation-targeting framework, according to a recent study by Frederic Mishkin, an economist at Columbia University in New York*.
"The flexible inflation-targeting framework should remain broadly in place," he said.
These reductions were justified within the inflation-targeting framework; without them the target would have been undershot.
Nevertheless, it was stressed that the coefficients of the reporting process of both NB2-Logit and MisProbit models must be treated with caution, since the reporting process can be also interpreted as in a Zero-Inflation (ZI) framework (that is, there are some individuals who never participate in criminal activities, while the rest of them may do so and therefore may commit crimes).
