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How Inflation Targeting Operates in the UK - Coursework Example

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"How Inflation Targeting Operates in the UK" paper discuses inflation targeting, as a monetary policy mechanism that has been adopted and extensively applied in several countries in the past two decades. The discussion is centered on the application of inflation targeting in UK…
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How Inflation Targeting Operates in the UK
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Download file to see previous pages Managing inflation has become a major function of several players in the economy and government. Inflation targeting offers a new formula for inflation management and overall formulation and application of monetary policy.

The traditional mechanism involved the public declaration of inflation figures for the subsequent year. However, this has proved to be inefficient as it fails to provide the way forward towards maintaining a stable inflation rate for economic viability. Inflation targeting has been applied in the UK since 1992 with several modifications and advancements made over the years with exceptional reference to 1997. Comparative statistics indicate that there has been great improvement as regards stability of inflation rate as well as the development and application of viable monetary policy mechanism tact since the launching of inflation targeting in UK two decades ago. This is an indicator of the numerous benefits of inflation targeting as an effective mechanism of managing inflation and monetary policy. This paper will specifically focus on the practice of inflation targeting in UK as well as its relevant benefits (Benati n.d, 4).

Historically, the monetary strategy of UK has been in a condition of continuous upheaval in the period following the Second World War. Nevertheless, from the state of affairs of several nations there are a number of frameworks in addition to monetary strategy that brought about a certain level of macroeconomic stability in UK which could not have been considered in 1992 (Bean 2003, 26). There are two important ingredients namely inflation target and operational independence, the most significant is the inflation target. There has also been the aspect of reinforcing stable and low inflation along with affixing inflation expectations. A number of challenges will emanate and threat monetary strategy makers in UK as well as other parts of the world. ...Download file to see next pagesRead More
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