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MONETARY POLICY STRATEGY: THE INTERNATIONAL EXPERIENCE 487

Preview 487

The Role of a Nominal Anchor 487

The Time-Consistency Problem 488

Exchange-Rate Targeting 489

Advantages of Exchange-Rate Targeting 489

Disadvantages of Exchange-Rate Targeting 490

When Is Exchange-Rate Targeting Desirable for Industrialized Countries? 492

When Is Exchange-Rate Targeting Desirable for Emerging Market Countries? 492

Currency Boards 492

Dollarization 493

Box 1 Global: Argentina's Currency Board 494

Monetary Targeting 496

Monetary Targeting in Canada, the United Kingdom, Japan, Germany, and Switzerland . . .496

Box 2 Global: The European Central Bank's Monetary Policy Strategy 498

Advantages of Monetary Targeting 500

Disadvantages of Monetary Targeting 501

Inflation Targeting 501

Inflation Targeting in New Zealand, Canada, and the United Kingdom 501

Advantages of Inflation Targeting 504

Disadvantages of Inflation Targeting 506

Nominal GDP Targeting 508

Monetary Policy with an Implicit Nominal Anchor 509

Advantages of the Fed's Approach 510

Disadvantages of the Fed's Approach 510

Summary, Key Terms, Questions and Problems, and Web Exercises 512

PART VI Monetary Theory 515

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