An inflation targeting regime is the delegation of monetary policy to a central bank that is aaigned an explicit inflation target, an implicit output or unemployment target, nd an implicit relative weight on output and unemployment stabilization. (Svensson, 1996) . Inflation targeting has known a great success among academia and the practitioners in the 1990 s, as the intermediate targets for monetary policy have proven powerless in front of financial innovation and international financial integration. In a short span of time, a number of central banks have adopted inflation targets in their conduct of monetary policy. As M. Friedman suggests, inflation targeting does not mean eschewing concern for real economic outcomes and it does not imply that money is neutral in the short and medium term. In such a context, inflation targeting seems to provide the rigour of a strong anchor, while allowing for flexible behavior from the part of the central bank in the short term. There are several prerequisites for a country to be able to implement inflation targetng: the existence of a well developed financial system that allows an efficient conduct of monetary policy, a solid inflation forecasting framework, a healthy political system and a independent central bank.
Inflation targeting is leading to a more transparent monetary policy and there is a better communication of central bank’s intentions. As suggested by early research, (M. Woodford, B. Bernanke, 1997) a desirable advantage of such a monetary policy is that the inflation targeting central bank may avoid the „velocity instability problem”, which arises when there are unexpected changes in the relationship between the intermediate target and the ultimate objective.
A clear disadvantage to inflation targeting monetary policy is the lagged empirical observation of inflation. The lack of timely information will force authorities to conduct their anbalyses through forecasted values of such variables. One way the central bank can overcome this problem is by having a medium term inflation objective and allowing for small temporary deviations form the assumed target. Researches warn, however, that a zero rate of inflation imposes permanent real cost on the economy rather than providing the benefits of low inflation (Akerlof G., Dickens W., Perry G, 1996) . Such costs seem to be more bearable by the public, as inflation costs appear in the eyes of the public higher than the costs of undergone employment and output. The reason for such an atittude are still unclear: the risk to loose the existent social order or that inflation hurts most lower(and more numerous) classes.
An important issue with inflation targeting that is not discussed in the literature is the source of inflation. As Clarida, Gali and Gertler suggest in their seminal paper (R. Clarida, J. Gali, M.Gertler, 1999) , one of the big challenges a central bank face is to distinguish the source of inflation and to anticipate the effects of an inflationary shock. They suggest that an optimal monetary policy should on one hand adjust the interest rate to offset demand shocks and on the other hand accomodate shocks to potential output by keeping the nominal rate constant. The Federal Reserve has encountered such an issue in the 90 s, and most economists agree today that the federal funds rate was kept too low for too long.
There are several advantages to inflation targeting in comparison to other variables targeting. With a specified quantitative target, a central bank becomes more accountable of its monetary policy. If the central bank strictly follows the assumed target, it manages to create credibility in the markets and anchors inflation expectations. A low inflation target can reduce or eliminate the inflation bias. However, central banks have no perfect control over inflation. There are many sources price movements and today’s inflation is the result of past decisions. Svensson argues that efficient inflation targeting is based on central bank’s inflation forecast for a future period rather than today’s inflation (Svensson, 1996) . He argues that inflation forecast targeting would provide a simpler implementation and monitoring of monetary policy. The weight on output stabilization must determine the speed with which the inflation forecast is adjusted towards the inflation target. This solution is considered superior to money growth or exchange rate targeting as it leads to lower inflation variability.
Other researchers suggest that inflation targeting should appear as a general framework rather than a policy rule. Thus, increased transparency and coherence of policy would be possible, while keeping possible flexible monetary policy actions (F.Mishkin, Ben S. Bernanke , 1997) . An inflation targeting regime does not necessarily mean inflexibility towards short run stabilization needs. The accommodation of short run stabilization needs is compatible with inflation targeting as in most cases, this goal is to be achieved in the medium or in the long run. Friedman and Kuttner view inflation targeting following a Taylor rule amounts as a well defined monetary policy strategy while making the point that such policy may be a too rigid monetary policy (Friedman B. M., Kuttner K.N., 1996) . However, (Svensson L.E.O., 1995) finds that no central bank with an explicit inflation target seems to behave as if it wishes to achieve the target at all cos, regardless of output and employment consequences.
Their evidence suggest that the optimal inflation taget should not be zero, even if such a target may help from a fiscal point of view.
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