Towards An Inflation Targeting Regime in Zambia
In this paper, the author seeks to discuss the conduct of monetary policy in an inflation targeting framework. The objective is to understand structural and institutional nuances in settings where this framework is successful in controlling inflation and challenges that emerge in the implementation of inflation targeting. The author deals with the question: which institutional conditions should exist to support the successful implementation of inflation targeting in countries that use it? It was found that several institutional and legal elements which are common and can potentially explain much of the success in the implementation of inflation targeting among their monetary authorities. These elements are bench marked with the concepts of transparency and accountability of the central bank which are central tenets in the discussion of inflation targeting. It was noted that central bank credibility is a key outstanding element in explaining the success of inflation targeting. Components such as central bank independence and commitment to low stable inflation as the overriding objective of monetary policy represent critical preconditions for inflation targeting and can sustain the credibility of monetary policy.