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- Author or Editor: T. Erdős x
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In the present article the author examines how to develop economic and monetary policy in order to efficiently apply inflation targeting. In Hungary, an inflation targeting system has been applied since 2001. As a result of the current monetary policy, consumer price level must regularly be kept stable at least in a mid-term approach in the middle but possibly also in the long run, or else it should be rising slowly, two per cent per year, at the most. Should the monetary authority have to deal with an already existing fast inflation rate, a considerable reduction of the rate of inflation must be aimed at year by year. Once monetary policy succeeds in bringing down inflation, the low rate achieved must permanently be secured. However, it is not sure that monetary policy has to prefer inflation targeting under any circumstances whatsoever.This policy has a favourable effect only if two substantial preconditions are given: public finances are near the equilibrium and nominal wages are regularly adjusted to the growth rate of GDP. Otherwise, inflation targeting may also have harmful effects such as excessive overvaluation of the national currency, excess of domestic use over GNP, increase of domestic and external debt, decreasing trend of the savings and investment rate, lower economic growth potential.