inflation targeting

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A policy in which the government or central bank announces a target rate for inflation in the medium term, as measured by a specified index, and then uses changes in interest rates or other tools of monetary policy in an attempt to achieve this rate. The policy was pioneered in New Zealand from 1990 and has now been adopted by over 50 countries including the UK. In the USA the Federal Reserve operates a somewhat less strict regime in which a target range for inflation is announced.

Subjects: Financial Institutions and Services — Accounting.

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