INTERNATIONAL MONETARY FUND Inflation Targeting and the IMF Prepared by Monetary and Financial Systems Department, Policy and Development Review Department, and Research Department1 Approved by Mark Allen, Ulrich Baumgartner, and Raghuram Rajan March 16, 2006 Contents Page Executive Summary .3 I. Introduction . 4 II. The Ongoing Shift Toward Inflation Targeting . 6 III. Inflation Targeting and Macroeconomic Performance . 8 A. Macroeconomic Performance Under Alternative Monetary Policy Regimes . 8 B. Inflation Targeting and Crises 14 IV. Adopting Inflation Targeting in Emerging Market and Developing Countries . 16 A. Are Developing Countries Good Candidates for Inflation Targeting? 17 B. Adapting Inflation Targeting to Non-industrial Countries . 23 V. Implications of the Move Toward Inflation Targeting for Fund Work . 27 A. Technical Assistance 27 B. Fund Surveillance, Training, and Research . 28 C. Fund-Supported Programs and Conditionality . 29 VI. Conclusions and Issues for Discussion . 32 Boxes: 1. Inflation Targeting in the Philippines 39 2. Fund Conditionality Under Inflation Targeting Regimes 41 Tables: 1. Inflation Targeters 5 2. Prospective Candidates for Inflation Targeting .8 3. Gains/Losses from Different Regimes .13 4. Crisis Resilience Under Different Regimes .16 1 The main authors of this paper are Nicoletta Batini, Peter Breuer, Kalpana Kochhar, and Scott Roger.