Chapter 19, Problem 4LO

To determine

Weighing the advantages and disadvantages of inflation targeting.

Concept Introduction:

Inflation targeting: It is the device of a monetary policy wherein the central banks announce the inflation targets in numerical terms to the general public and try to steer the actual inflation rates to the target in order to maintain price stability in the economy.

Time Inconsistency Gap: It is a situation in which a decision-maker's preferences change over time in such a way that a preference can become inconsistent at another point in time.