ABSTRACT. Goodfriend and Prasad hold that an inflation objective would provide a firm and credible nominal anchor that would contribute to overall macroeconomic stability. Mariano and Villanueva assert that the three prerequisites for a successful inflation targeting are: (i) central bank independence; (ii) the absence of fiscal dominance; and (iii) the presence of clear transmission channels from monetary policy instruments to market-determined interest rates. Mohanty and Scatigna argue that resisting appreciation pressures and building reserves in response to a rise in short-term capital inflows can cushion the economy against volatile exchange rate movements.



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