Comments:

1
Comments Inflation Targeting Framework for
Jamaica An Empirical Exploration

• Myriam Quispe-Agnoli
• Federal Reserve Bank of Atlanta
• Conference on Inflation Targeting
• October 4 5, 2004

2
Objective of the paper

• Is inflation targeting (IT) an effective
  framework for monetary policy in Jamaica?

3
Paper Structure

• Monetary Policy in Jamaica since 1990.
• Literature review comparing the IT experience of
  developed and developing countries.
• Review of the fundamental requirements for IT in
  Jamaica.
• Discusses the implementation of IT in Jamaica.

4
Comments Outline

• I will follow the outline of the paper for my
  comments
• First, I will look at the preconditions for
  inflation targeting (IT) followed by questions on
  specific topics
• Second, I will discuss the some issues on IT
  design and implementation
• Finally, I will bring general questions

5
Suggested list of preconditions before adopting IT

• Central bank independence (CBI).
• Macroeconomic stability.
• Financial system stability.
• Other institutional elements.

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Preconditions for IT in Jamaica

• Does the Central Bank have a reasonable degree of
  operational independence to ensure flexibility in
  monetary policy towards achieving the inflation
  target?
• Central Bank is independent but
• There is no law that prohibits public financing
• Political independence is limited by the presence
  of government representatives on the board

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Some Questions Regarding Central Bank Independence

• Table to compare CBI estimates of IT developing
  countries and Jamaica.
• What do you think about CBI during the monetary
  targeting period, 1996-2002?
• What can the financing of the fiscal deficit tell
  us about CBI?

8
Preconditions for IT in Jamaica

• Is monetary policy influenced by public sector
  borrowing from the bank?
• Between 1994 and 1998, heavy reliance on
  seigniorage for public financing.
• In subsequent years, external borrowing was the
  main source for public financing.
• However, fiscal imbalances remain at high levels.

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Some Questions Regarding Fiscal Dominance

• Fiscal imbalances might limit or restrict the
  credibility of future IT in Jamaica
• Is there a plan to implement tax reform or an
  effort to reorganize government expenditures in
  Jamaica?
• Do you think that the domestic capital market
  might become an alternative source for public
  financing?

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Preconditions for IT in Jamaica

• A flexible and independent monetary policy
  requires a deep financial system that is an
  alternative source for public financing.
• According to the paper, there is a well
  functioning financial market in Jamaica.
• Competitive interest rates, no financial
  repression.
• Diversified instruments for savings and
  investment.

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Some Questions Regarding Financial Depth

• Could you tell us about the performance of
  private credit by banks as percentage of GDP?
• Is there a regulatory and supervisory institution
  for the banking system?
• What is the size and performance of the stock and
  bond market?
• Is the financial system deep enough to absorb the
  placement of public debt?

12
Issues of IT design and implementation

• Bosede analyzes the appropriate inflation index
  to use for IT, concluding that either core or
  headline inflation could be used as the relevant
  price index.
• The author also uses a VAR model to show the
  effect of different inflation target horizon and
  the bandwidth on the stability of monetary
  policy.
• Conclusion a 24-month horizon is the adequate
  for a successful IT implementation.

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General Questions

• Given external shocks, is the Central Bank's
  commitment to price stability as a primary goal
  credible?
• What is the import component of the price index?
• What is the level of the dollarization degree of
  the financial system?
• Is there an effort to coordinate fiscal and debt
  management policies?
• What is the likelihood of new legislation to
  protect Central Bank independence?

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Some Macroeconomic Indicators