SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME
In its early history, monetary policy focused on numerous objectives, including stable growth, full employment, stable exchange rates and price stability. In the 1990s, many countries shifted their monetary policy framework from monetary aggregate/interest rate targeting to inflation targeting, in w...
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| Format: | Article |
| Language: | English |
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Bank Indonesia
2021-08-01
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| Series: | Journal of Islamic Monetary Economics and Finance |
| Subjects: | |
| Online Access: | https://jimf-bi.org/index.php/JIMF/article/view/1366 |
| _version_ | 1827990190592884736 |
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| author | Atiq ur Rehman |
| author_facet | Atiq ur Rehman |
| author_sort | Atiq ur Rehman |
| collection | DOAJ |
| description | In its early history, monetary policy focused on numerous objectives, including stable growth, full employment, stable exchange rates and price stability. In the 1990s, many countries shifted their monetary policy framework from monetary aggregate/interest rate targeting to inflation targeting, in which inflation was regarded as the primary target of monetary policy, and interest rates the primary tool for achieving target inflation. Inflation targeting has diverted the focus of central banks from growth and employment to price stability. Unfortunately, there is considerable evidence which shows that inflation targeting frameworks are unable to control inflation in the way central banks want, and in fact lead to a greater departure from optimal growth and employment, the two key targets of sustainable development goals (SDGs). There is also evidence suggesting a strong association between inflation targeting and the move away from several other SDGs. Employing a systematic review of the related literature and Granger causality tests applied to data from various countries, this paper shows that inflation targeting fails to control inflation and has several undesirable impacts on a wide range of socioeconomic indicators. It is argued that the zero-interest regime is the optimal regime with respect to the impact on socioeconomic indicators, and also supports the interest free economy advocated by Islam. |
| first_indexed | 2024-04-10T00:31:23Z |
| format | Article |
| id | doaj.art-d9cdb2122e8f443eb87fb76889a7dc13 |
| institution | Directory Open Access Journal |
| issn | 2460-6146 2460-6618 |
| language | English |
| last_indexed | 2024-04-10T00:31:23Z |
| publishDate | 2021-08-01 |
| publisher | Bank Indonesia |
| record_format | Article |
| series | Journal of Islamic Monetary Economics and Finance |
| spelling | doaj.art-d9cdb2122e8f443eb87fb76889a7dc132023-03-15T04:23:51ZengBank IndonesiaJournal of Islamic Monetary Economics and Finance2460-61462460-66182021-08-017356158210.21098/jimf.v7i3.13661366SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIMEAtiq ur Rehman0University of Azad Jammu and Kashmir, PakistanIn its early history, monetary policy focused on numerous objectives, including stable growth, full employment, stable exchange rates and price stability. In the 1990s, many countries shifted their monetary policy framework from monetary aggregate/interest rate targeting to inflation targeting, in which inflation was regarded as the primary target of monetary policy, and interest rates the primary tool for achieving target inflation. Inflation targeting has diverted the focus of central banks from growth and employment to price stability. Unfortunately, there is considerable evidence which shows that inflation targeting frameworks are unable to control inflation in the way central banks want, and in fact lead to a greater departure from optimal growth and employment, the two key targets of sustainable development goals (SDGs). There is also evidence suggesting a strong association between inflation targeting and the move away from several other SDGs. Employing a systematic review of the related literature and Granger causality tests applied to data from various countries, this paper shows that inflation targeting fails to control inflation and has several undesirable impacts on a wide range of socioeconomic indicators. It is argued that the zero-interest regime is the optimal regime with respect to the impact on socioeconomic indicators, and also supports the interest free economy advocated by Islam.https://jimf-bi.org/index.php/JIMF/article/view/1366central bank, inflation targeting, sustainable development goals, zero interest. |
| spellingShingle | Atiq ur Rehman SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME Journal of Islamic Monetary Economics and Finance central bank, inflation targeting, sustainable development goals, zero interest. |
| title | SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME |
| title_full | SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME |
| title_fullStr | SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME |
| title_full_unstemmed | SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME |
| title_short | SAY NO TO INFLATION TARGETING: A CALL FOR THE ADAPTATION OF A ZERO-INTEREST REGIME |
| title_sort | say no to inflation targeting a call for the adaptation of a zero interest regime |
| topic | central bank, inflation targeting, sustainable development goals, zero interest. |
| url | https://jimf-bi.org/index.php/JIMF/article/view/1366 |
| work_keys_str_mv | AT atiqurrehman saynotoinflationtargetingacallfortheadaptationofazerointerestregime |