One advantage cited for formal inflation targeting is that by anchoring inflationary expectations this policy framework would aid in the pricing of long-term securities. Long-term interest rates would become less sensitive to temporary shocks to the economy including policy-induced changes in...

This article offers a theory‐based explanation for why high‐ interest‐rate countries see their currencies appreciate, the so‐called UIP puzzle. The central bank bases its target rule on the lag of the policy instrument and the CPI inflation rate. When combined with a stylised model of an...