Inflation targeting in South Africa

A further, and final, issue addressed by Mishkin (2002) is whether inflation targeters differ or not from non targeters: both focus on the long term goal of price stability and address flexibility and transparency. The comparison is made between inflation targeters and Germany: targeting monetary aggregates lead the Bundesbank to the achievement of a certain price stability, together with generating great awareness in both the public and the officials.

A paper written by Amato, Morris, Shin (2002), argues that more clarity in communicating central bank's intentions results also in more effectiveness of monetary policy: ''sin ce market expectations are shaped in part by the future course of action of the central bank, monetary policy is more effective if i t is more effective in coordinating market expectations". In the case of the Bundesbank, more clarity in communicating central bank's intentions was accompanied by general commitment of the population for achieving a certain price stability, due to previous experiences of serious episodes of disinflation. Coordinating market expectations was easier, as the Bundesbank benefited from trust and confidence present in the public, which allowed credibility to be maintained even when misses in the target occurred.

On the other hand, the European central Bank, which suffered from a "communication gap", due to the difficulty in explaining the two pillar strategy for forecasting inflation, i.e., the monetary analysis and the economic analysis ,based on control of monetary aggregates (the first pillar) and inflation (the second pillar). Is the success of a certain monetary poiicy, as inflation targeting, strongly linked to effectiveness in communicating this policy? In a paper written by Dueker and Fischer(2006)on whether economic performance of targeters outperformed that of non-targeters, it was concluded that there is no real difference between the two groups: as inflation targeting countries achieved the results of successful non-targeters, inflation targeting seems to represent the convergence to 'best practice' in monetary policy, with the difference that the objectives of monetary policy, as inflation control, achievement of price stability become an explicit obligation for the central bank to accomplish. Inflation targeting assumes the shape of a monetary policy voluntarily directed towards 'best practice' in monetary policy, making inflation targeting acquire the status of a set of rules for monetary policy, rather than a monetary policy specifically for itself.