Inflation targeting as currently conducted by central banks in both developed and developing economies is breaking down. In the developed countries it is stymied by asset and credit bubbles and in developing countries infl ation targeting has been disrupted by the source of infl ationary pressures and volatile capital fl ows. Developing countries need to fi nd ways of targeting non-core infl ation, and also need to devise a separate policy instrument to target the external fi nancial cycle.
