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Explain how inflation targeting operates in the UK and Critically evaluate the benefits of inflation targeting - Essay Example
Finance & Accounting
Pages 8 (2008 words)
How inflation targeting operates in the UK and critically evaluates the benefits of inflation targeting Name College Course Date How inflation targeting in the UK operates Inflation targeting is a move by the central bank to set a specific inflation target which will then be achieved by either raising interest rates or lowering it…
Inflation is all about price stability and it has been agreed by the economist that a rate of between (0-3) percent is the good enough rate fro the economy. With stable prices at that rate, consumer confidence is raised hence propelling the economy, if the consumer confidence is lower, then the economy will be stuck (Ben 2003). Inflation can only be made success through central banks making price stability its primary objective through strong institutional commitment to attaining that. United Kingdom was not the first country to introduce the inflation instead there are countries like Canada which did it ahead of them. Many countries over time have followed suit to introduce the inflation targeting within their economies with many others looking for technical assistance to help them introduce it (Richard 2005). Japan is one of the few who have not adopted it yet because of its well developed economy with rather stable inflation rate. UK inflation is therefore currently more stable in comparison with the past performance. UK quit ERM in 1992 due to rising tension between having to follow a tight policy framework in order to maintain existing exchange rate and the other option of having to cut the domestic downfall by taking down interest rates it (Richard 2005). ...
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