Are International Financial Crises a Relic of the Past? Inflation Targeting as a Monetary Vaccine

CEPR Policy Insight No 1

Andrew K Rose

A new world financial 'non-system' is emerging. It consists of nations with independent central banks that target inflation and let their exchange rates float, usually without controls on capital flows and often without intervention. Because the goal of monetary policy is aligned with national interests, the non-system is remarkably durable; no country has been forced to abandon an inflation-targeting regime. Participants in the new system experience lower exchange rate volatility and fewer "sudden stops" of capital flows than their counterparts.