Recently a number of countries have adopted explicit inflation targets as a guide for policy since a numerical target is attractive for anchoring inflation expectations. Monetary policy, under inflation targeting, is implemented grounded on handling only one instrument to control inflation - the interest rate. Nevertheless, the perseverance on using this kind of rule brings negative consequences for the expectations about potential economic growth. Hence, the paper aims at making evident the process of price-making in market economies and discuss how the monetary policy, under inflation targeting, affects positively the process of inflation expectations formation, however with harmful consequences upon expectations regarding the output growth.
Inflation targeting; Pricing; Economic development
