Overview

This study reviews the literature on the contribution of low inflation to economic growth and the subsequent widespread adoption of inflation targeting as a monetary policy framework. Edwin Truman addresses the challenges and risks associated with such a framework. Building on these foundations, the study focuses on two major international economic policy issues: (1) the implications of differing national regimes of inflation targeting for international economic policy cooperation; and (2) the adoption of inflation targeting by emerging-market economies which often lack stable monetary policy environments and credible policy authorities-a situation which, among other things, can complicate the use of the inflation targeting framework as the basis for IMF-supported stabilization programs.

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Edwin M. Truman, Senior Fellow, was Assistant Secretary of the Treasury for International Affairs (1998-2000). He was staff director of the Division of International Finance of the Board of Governors of the Federal Reserve System (1987-98) and was director of the Division from 1997 to 1987. From 1983 to 1990, he was one of three economists on the staff of the Federal Open Market Committee and has been a member of numerous international groups working on international economic and financial issues. His publications include works on international monetary economics, international debt problems, economic development, and European economic integration.

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