No policy for troubled times: Does inflation targeting really work?

On the evidence at hand, inflation targeting works only when the world economy is normal, and demand swings up and down in small cycles that monetary policy tackles, writes T N Ninan

The target for inflation in most advanced economies is 2 per cent. But consumer price inflation in the US is running at 3.7 per cent, in the euro area at 5.6 per cent, in Britain at 6.8 per cent, and in Japan at 2.9 per cent. In Germany, battling zero growth, it is 4.3 per cent. And in India, where inflation is typically much higher than in these advanced economies, it is almost benign at 5 per cent — though higher than the monetary policy target of 4 per cent, a number that the Reserve Bank of India (RBI) does