Much of the recent debate about global imbalances focused on new Bretton Woods hypothesis put forward by Dooley et al. in 2003. Recent paper by Andrew Rose titled Much of the recent debate about global imbalances focused on [new Bretton Woods](http://www.frbsf.org/economics/conferences/0502/w9971.pdf) hypothesis put forward by Dooley et al. in 2003. Recent paper by Andrew Rose titled cocludes:
“As a result of its manifest success, inflation targeting has continued to spread; it now includes a number of developing countries as well as a large chunk of the OECD. Indeed the spread of this monetary strategy has been remarkably fast in the conservative world of monetary policy. The system of domestically-oriented monetary policy with floating exchange rates and capital mobility was not formally planned. It does not have a central role for the United States, gold, or the International Monetary Fund. In short, it is the diametric opposite of the postwar system; Bretton Woods, reversed. “
Rose presents evidence that inflation targeting works, for example countries that adopted this monetary strategy have lower inflation volatility than non-inflation targeters, and it does not come at the expence of higher exchange rate volatility. Conclusions are very much in line with results presented in IMF working paper Batini et al. (2006).
I find Rose paper truly illuminating, but not for its empirical results, as we already know about good features of inflation targeting. The paper indicates, that in contrast to previous monetary policy regimes (Bretton Woods in particular) the present choice of central banks to go for inflation targeting is an open source technology. Nobody planned it, there was no coordination, great academic economists invented the concept and through a great knowledge sharing act this best practice was adopted by many countries. Central bank work with it, fine-tune it, learn from each other, help each other develope this framework such that we do a better job for out citizens. When poeple think about open source they usually mean Wikipedia, Linux, Apache, or networking model adopted by Li&Fung apparel making network. But it appears, and it is truly illuminating, that the best example of an open source technology, that affects lives of millions of citizens in a good way, is inflation targeting.
I believe that networking and open source are open business models of the XXI century, much more efficient, and designed to create new innovations at the speend unthinkable in the old XX century closed business models. Now I understand – thank you professor Rose – that monetary policy is also run this way in many countries. It is now high time for central banks to align their internal structures to this model.