Inflation Targeting Essay Example | Topics and Well Written Essays - 500 words

Inflation Targeting - Essay Example Inflation targeting focuses on the long term and theoretically leads to greater transparency as its easily quantifiable structure promotes greater accountability and responsibility within the central financial authority. Mishkin (2001) argues that "it is devised in such a way that its viability is not completely predicated on a stable relationship between money and inflation" (p. 2) - instead it relies on comprehensive economic information to determine the instruments to be utilized. A properly implemented scheme brings more credibility and encourages public support for the central banking authority because of its highly transparent nature.  On the flipside, some pundits argue that one of its biggest disadvantages is that it renders any form of direct control over inflation very difficult to achieve, largely in part to its rigid structure leaning too much towards the bottom line. Also, the strategy apparently leaves too much room for discretion, resulting in a hypothetical grey are a in terms of process control and execution. Lastly, the unpredictable lag times between policy introduction and actual inflation rise may be too drawn out for the public to monitor effectively, and may even be forgotten altogether in the long run. In theory, a principal principal-agents on the difficulties that emanate from the lack of information each time principal commissions an agent. According to Johnson (2005) â€Å"it is a difficult but extremely important and recurrent organizational design problem of how organizations can structure incentives so that people under contractual obligation would perform this obligation as promised† (n.p.) The primary dilemma lies in reconciling the different factors in the principal-agent dynamic en route to a synergistic and productive relationship.