Limits of Inflation Targeting Strategy

This paper evaluates the trade-off between output volatility and the variability of the inflation rate around its target (Romanian case). The optimal choice for National Bank of Romania (NBR), in our opinion, is the flexible inflation targeting. For this purpose, NBR must explain the loss function and the optimal monetary policy rule. We then argued that this Romanian authority – NBR – can substantially improve its credibility under inflation targeting policy regime by becoming more accountable and transparent. Is the direct inflation targeting the best choice for the monetary policy regime in Romanian economy?