understanding inflation dynamics. Supply shocks such as sharp increases in oil prices have become an indispensable part of economic analysis since then.
Uncovering the relationship between the global oil prices and inflation rate has some important
1 Introduction The price index of consumer goods and services (CPI) is commonly used as the basic measure of inflation. It approximates the change in consumption expenditure that ensures a constant level of utility for households (COLI, Cost of
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.
1 Introduction, literature review The position of inflation in economic growth cannot be overlooked, as it can affect either positively or negatively. This is because inflation has broad impacts on macroeconomy, such as economic growth
1 Introduction Inflation targeting (IT) represents a monetary policy regime that has been implemented in many countries of different development stages in the last three decades. Its fundamental feature is defining and publicly announcing a