Inflation-targeting monetary policy analysis

Introduction

The 3 countries that have been selected for the analysis conducted are Turkey, Greece, and Japan. Since the main focus of this analytical paper is inflation, these countries have been selected for their inflation policies that have been implemented by the government of these companies.

The last recorded GDP of Greece was 217.58 billion USD as of 2022, with an annual growth of 5.6 per cent. The recorded GDP of Turkey was 1,102,985 million USD as of 2023, making Turkey hold the 19th position in terms of GDP collection out of all the 196 countries globally. Finally, the GDP of Japan is projected to be around 1.1 per cent in 2024.

Following the federal relationship that exists between GDP and inflation, stating that GDP and inflation are directly proportional to each other, meaning that with an increase in GDP, the inflation of the respective economy also increases. Following the data of the GSPs that have been presented for all the three countries selected for this analytical paper, it is evident that with an increase in the GDPs of the countries selected for this paper, the inflation of these countries also increases.

Therefore, an increase in the inflation of these countries would mean strong inflation policies being implemented within these countries as well, which is the primary focus of this paper as well. The GDP that has been generated by Malawi is around 13 billion USD, meaning that the inflation rate of the country is also prominent within the current economic situation of the country.

Another country that the paper has focused upon is Rwanda, is 13 billion USD providing another essential insight into the current inflation situation of the country as well. Other than addressing the GDP of these countries, this paper has also addressed their fiscal policies based on the current economic situation of these countries as well. Various sources of data have been used during the completion of this paper to analyse the effectiveness of these policies and how these countries have dealt with various economic situations as well.

(d) Critically evaluate the success of inflation targeting, a monetary policy approach adopted by three countries

Within the understanding of inflation, the global phenomenon that it is has become a major concern for most countries today. Inflation is severely acknowledged and widely adopted as a monetary policy approach by numerous nations, globally. The consideration of three different reviewed articles, from three different countries such as Turkey, Japan and Greece are considered in the present discussion. 

Ekinci, R., Tüzün, O., & Ceylan, F. (2020). The relationship between inflation and economic growth: Experiences of some inflation targeting countries. Financial Studies, 24(1 (87)), 6-20.

One of the most talked about countries, Turkey has been intervening in inflation targeting as one of its primary monetary policy frameworks for a long time. The relationship between economic growth and inflation in a country like Turkey and other inflation are exemplary as highlighted by Ekinci et al. (2020). Inflation targeting is exceptional as it helps contribute to the economic growth positively in a country like Turkey. This Unravels that inflation targeting also provides a degree of success in achieving their objectives. Historically, and in the contemporary context, the country has experienced challenges such as high inflation rates in the past and today and in some cases, it has exceeded target levels. This has indicated the potential limitations and drawbacks in the effectiveness of the policy as well (Ekinci et al., 2020).

Christensen, J. H., & Spiegel, M. M. (2022). Monetary reforms and inflation expectations in Japan: Evidence from inflation-indexed bonds. Journal of Econometrics, 231(2), 410-431.

Through analysing the Japanese-index bounds, it has been observed that the current inflation rate of Japan has been the lowest since 2013. It is because of this significant decrease in the rate of inflation in the country, the policies that have been implemented by the country are mostly to protect the country from deflation (Christensen & Spiegel, 2022). While comparing the current inflation rate of the country with that of the other countries like that of the USA, the difference between the inflation rate of Japan and America has a stark difference. Because of this stark difference, the differences in these policies are well justified between the Japanese economic condition and that of other countries as well.

Antonakakis, N., Christou, C., Gil-Alana, L. A., & Gupta, R. (2021). Inflation-targeting and inflation volatility: International evidence from the cosine-squared cepstrum. International Economics, 167, 29-38.

Within the context of this particular country, especially in the understanding of the Eurozone, Greece as a nation does not have an independent monetary policy. This is primarily in fact due to its membership in the eurozone. The adoption of the euro essentially complies with the European Central Bank’s (ECB) monetary policy, which essentially targets inflation.

According to the study conducted by Antonakakis et al. (2021), an extended understanding is generated by examining the relationship between inflation, volatility, and inflation, targeting the utilisation of international evidence and insights. These findings have indicated that inflation targeting is extremely effective in indicating inflation volatility.

Subsequently, it is highly crucial for macroeconomic stability and economic performance in a country like Greece. However, this country within the eurozone, also displays the hindrance of strictly adhering to a common monetary policy framework

Recommendations for assigned countries whether they could implement inflation-targeting monetary policy for economic stability

For a country like Turkey, conducting a smooth transition to a more robust inflation–targeting monetary policy will effectively elevate their overall economic stability. The country has a positive relationship between inflation, targeting and economic growth as it was highlighted where the nation can benefit from vivid and more transfers in monetary policy regime. It is extremely relevant for the country to address all these challenges, such as increased inflation rates, and potential credibility issues where full adoption of implication targeting can help the country to fortify its institutional framework while elevating central bank independence. 

In a nation like Japan, where the rate of increase of inflation is so low for so many years, the inflation policies that have been implemented by the country should also be different as compared to those countries with a high rate of GDP rate and similar increase in the rate of inflation as well. These kinds of different adoptions of such a country could be necessary to ensure that there is a level of stability and balance within the economy of the country as well.

Again referring to the federal relationship, the increase in the GDP and inflation within the economy of the country suggests that the companies that are currently operating with the market of the respective country are generating business and profit as well. Therefore, the inflation policies of Japan should ensure that these profits generated by the companies operating within their markets are operating properly and that there is not an increase in the level of unemployment in the country either.

As a nation, Greece can advocate for policies at the European central bank level while constantly emphasising inflation stability. Upon further consideration of the unique economic circumstances of member countries, it can help Greece to find improvements in its implementation of inflation, targeting as a policy. Moreover, further focus on implementing complementary policies to address structural weaknesses while improving economic resilience, especially where there are several constraints of the common currency framework will be effective for the nation.
 

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References

Antonakakis, N., Christou, C., Gil-Alana, L. A., & Gupta, R. (2021). Inflation-targeting and inflation volatility: International evidence from the cosine-squared cepstrum. International Economics, 167, 29-38.
Christensen, J. H., & Spiegel, M. M. (2022). Monetary reforms and inflation expectations in Japan: Evidence from inflation-indexed bonds. Journal of Econometrics, 231(2), 410-431.
Ekinci, R., Tüzün, O., & Ceylan, F. (2020). The relationship between inflation and economic growth: Experiences of some inflation targeting countries. Financial Studies, 24(1 (87)), 6-20.