The contested institutionalization of policy paradigm shifts: The adoption of inflation targeting in Israel

This article explores the political dynamics that have led to the adoption of inflation targeting in Israel, within the context of a broader process of policy paradigm shift. We consider inflation targeting as an institutional arrangement with far reaching consequences for the distribution of power between different state agencies. Therefore, like other processes of institutional change, its adoption is not the simple outcome of smooth processes of learning and acceptance of more rational and efficient practices. Rather, it is the result of political conflicts among state actors seeking to improve their positions in the political-economic field. On the basis of a detailed study of the political conflicts that emerged around the adoption of inflation targeting in Israel between the central bank and the Ministry of Finance, we illustrate the contested character of the institutionalization of the neo-liberal policy paradigm and highlight the actions of local political actors as a major mechanism through which worldwide diffusion of institutional practices takes place.