MONETARY POLICY: FROM ADOPTING INFLATION TARGETING TO ZERO LOWER BOUND INTEREST RATES

Since 1990 most of central banks have begun adopting inflation targeting as their monetary policy regime and main framework for price stabilization. Within this regime, central banks choose medium-term inflation target and then manipulates short-term interest rates to control inflation rate, on the one hand and unemployment rate and output on the other hand. So, theoretically, this policy ultimately provides the central bank's objectives. This regime was quite effective till the crisis of 2008. However, after the crisis it becomes obvious that inflation targeting is not perfect regime enough, for counter-cyclical regulation. The main proof of this argument is the unconventional policy such as quantitative easing or forward guidance, which was widely conducted by world's leading central banks, alongside reduction in short term interest rates during and after crisis period. In this paper we analyze the results, reached within inflation targeting regime since its adoption. Also the future, post-crisis prospects of this regime in condition of zero lower bound interest rates and unconventional monetary policy, conducted by central banks. The main objective of the study is to answer the question: How much important is the transformation of the traditional monetary policy activities to unconventional policy and may it lead us to the adoption of the new regime of monetary policy.