Islamic Alternatives to Inflation Targeting

Inflation targeting appears to be the most popular monetary policy framework among economists. It assumes price stability to be the core objective of monetary policy and the interest rate to be the primary tool to bring about price stability. The framework, first introduced in New Zealand, was adapted by some of the major central banks of the world and is widely used by many international financial institutions. However, this book argues that there are many limitations to inflation targeting and the authors assert that many developed nations have practically abandoned the inflation targeting framework in favour of adapting Quantitative Easing. The book discusses the logical flaws in making price stability the core objective of monetary policy, the normative implications of monetary policy, as well as, the relationship between monetary policy, the sustainable development goals and other measures of human welfare. It provides empirical evidence to highlight the invalidity of this framework. Further, it analyses the connection between inflation targeting, fiscal indicators and public debt. It examines the role of international financial institutions in enforcing the inflation targeting framework and then goes on to explore the implications of Quantitative Easing, which central banks have adapted to deal with the effects of the Global Financial Crisis and the COVID-19 pandemic. Finally, the book looks at how Islamic Financial arrangements can provide a better alternative to quantitative easing. This book documents the pitfalls of the inflation targeting framework so that monetary students and researchers can have a better understanding of the contemporary, international monetary system.