The effect of institutional structure on political success: A study on countries applying inflation targeting

It is generally accepted in economic literature that the main reason for high inflation is the inflationary biased programs of the monetary authorities. As regards to this fact, this study explains the current monetary programs that aim to solve the time inconsistency problem of the monetary authorities. It is concluded that the most applicable and successful program, from 1990?s hitherto, is inflation targeting. Although definitions differ in detail, there is some consensus on the main characteristics of inflation targeting regime. Inflation targeting may be defined as a target rate or target band for a determined inflation rate and which is announced and committed by the monetary authorities to be achieved for a specified period and which is also a strong emphasis and acceptance as to the importance of the price stability. The aim of this thesis is to explain how to avoid the inflationary bias of policy that has been an irrevocable consequence of the time-inconsistency and credibility problems and to analyse institutional framework of inflation targeting strategy and its widely accepted preconditions, so as to determine the feasibility of this strategies to countries.