Thus, low inflation has to remain the responsibility of monetary policy, and central banks will have to remain on their guard. While the primary objective of central banks in industrial countries is to keep inflation low, central banks in many developing countries are still concerned with bringing inflation down to internationally more acceptable levels. As we heard in this seminar, a growing number of developing countries are looking into the possibility of adopting the inflation targeting strategy for this purpose. Here, too, the record is encouraging. It appears that countries that have adopted inflation targeting so far have succeeded in reaching their inflation targets.
Chile is a good example.
Following the successful stabilization of the economy in the second half of the 1980s, Chile decided to abandon monetary targeting in the early 1990s because of concerns about the suitability of that strategy in the context of fast-developing financial markets and volatile demand for money. I must mention that the Chilean case is unique because inflation targeting was adopted when inflation was still running at an annual rate of close to 20 percent. However, a key feature of the Chilean approach was its gradual and flexible implementation, which contributed to reducing inflation without incurring substantial output costs. In fact, it incurred no output costs until 1998. It provides a yardstick of accountability for central banks.