Inflation targeting may do more harm than good if there is a substantial
chance that the central bank cannot in fact control inflation. A prerequisite for
central bank control of inflation is appropriate coordination with or backup by fiscal
policy, and the nature of the required coordination will depend on whether and
how central bank independence from the fiscal authority has been implemented.
These considerations suggest that in those countries where inflation control has in
the past been most difficult, inflation targeting may be least useful. Where inflation
control has in the past been successful, the benefits of inflation targeting may have
more to do with the associated changes in the policy process and in the central
bank’s communication with the public than with the inflation target itself.