A critical review of alternative monetary policies to the inflation-targeting policy

Abstract

The purpose of this paper is to examine alternative monetary-policy frameworks from a theoretical perspective. The current global financial crisis and a debate on the appropriateness of inflation targeting as a monetary policy-framework have made it worthwhile to revisit the debate of alternative monetary-policy frameworks. As a result, different monetary-policy frameworks have been examined and reasons for and against the adoption of each policy framework were highlighted in this paper. This paper finds that there are several frameworks in which monetary policy can be conducted and none of these frameworks is perfect. Consequently, central banks over time, have experimented with various policy frameworks ranging from exchange-rate targeting to monetary-aggregate targeting. However, not all monetary-policy frameworks have been tested in practice. This paper is of the view that the adoption of a monetary-policy framework should be guided by merits and economic circumstances.