Considerations on the Explicit Inflation Targeting Framework

This working paper analyzes the explicit inflation targeting framework as a “restricted discretion” monetary policy framework that combines a commitment to a quantitative price target with the flexibility to respond to changes in the economic environment. Through a theoretical review, the authors examine how this model addresses the problem of dynamic inconsistency and inflationary bias by strengthening central bank autonomy, information transparency, and accountability. The study evaluates the pioneering experiences of New Zealand, Canada, and the United Kingdom, highlighting that the success of this regime in anchoring economic agents’ expectations and reducing inflation depends fundamentally on the technical definition of tolerance bands, the use of leading indicators, and close coordination with fiscal policy.