Targeting the price level directly, however, was generally considered not possible since the linkages between policy instruments and prices were somewhat uncertain and contained the long and variable lags. These problems led to two new issues which brought about a revolution in the approach to central banking. These are transparency and improved forecasting. Clearly, monetary policy is most effective in the presence of a firmly established nominal anchor, and the more understandable that anchor is to the public the better. An effective commitment to long-run price stability is just such a nominal anchor that the target rate of inflation communicates to the public the price level the central bank is aiming to achieve at specified dates in the future. Any move away from policy rules for long periods must face and deal with long and variable lags in the economy’s response to changes in policy stance. Improved modeling and forecasting is giving central banks increasing confidence in basing current policy decisions on expected future outcomes. When we sum up these developments in monetary policy, we need a monetary framework which includes the following components. It should be: •  transparent;  •  accountable;  •  predictable and easy-to-monitor; and  •  reliable. This is also why the IT (inflation targeting) countries introduced these institutional and operational features into their monetary policy frameworks. Before passing to the key issues for the success of IT regime, I would briefly like to focus on the basic key requirements of the inflation targeting framework in the literature.
Under an inflation targeting regime the central bank would be forced to calculate and publicize the long-run implications of its short-run actions, thus ensuring that they would be subject to public scrutiny and debate. To the extent that the central bank governors dislike admitting publicly that they may miss their long-run inflation targets, the existence of an inflation targeting framework provides an incentive for the central bank to limit its short-run opportunism. The advantage of the inflation targeting regime is its great emphasis on the regular communication with the public and transparency. This property plays an important role in the success of inflation targeting, particularly in the industrialized countries. The policy makers in the developed countries use every opportunity to communicate with public speeches, and takes a step further by way of inflation reports. Transparency and openness of the operating framework of monetary policy can bring important credibility gains, and institutional arrangements such as greater independence of the central bank can be helpful in this regard. European Central Bank and central banks in the EU zone are good examples for a model. Hence, it is perhaps not surprising that in many countries the adoption of official inflation targets has been accompanied by moves toward central bank independence and accountability. Nowadays, central banks are increasingly publishing information on their policies that they would have considered state secrets only twenty years ago, like minutes of board meetings and policy models.