have found evidence of additional gains stemming from inflation targeting. Ball and Sheridan (2003) have found no evidence that inflation-targeting countries have enjoyed better performance in the OECD. 2. The deviations of inflation from central targets and from the upper bounds of targets were 81% and 167% higher than in developed economies, respectively (table available on request to the authors). 13 1.. Emerging Market Economies 0) (0 8 Developed Economies 3.72 2.50 Before IT After IT (Until 2002:2) Before IT After IT (Until 2002:2) Date of adoption inflation targeting Developed economies
This paper assesses inflation targeting in emerging market economies (EMEs), and develops applied prescriptions for the conduct of monetary policy and inflation-targeting design in EMEs. We verify that EMEs have faced more acute trade-offs -higher output and inflation volatility -and worse performance than developed economies. These results stem from more pronounced external shocks, lower credibility, and lower level of development of institutions in these countries. In order to improve their performance, we recommend high levels of transparency and communication with the public and the development of more stable institutions. At an operational level, we propose a procedure that a central bank under inflation targeting can apply and communicate when facing strong supply shocks, and suggest a monitoring structure for an inflation-targeting regime under an IMF program.
The first section of this paper compares Latin America's economic performance in the 1990s with the 1980s and finds definite macroeconomic and social progress during the decade. The following section considers the policy performance of the region during the 1990s and finds that, on a country-by-country basis, the nations of Latin America that were more active in carrying out Washington Consensus reforms also experienced better economic performance. The final section will argue that rather than seeking to reverse the economic reforms that have been carried out, Latin American nations should be thinking about how to extend and complement the existing reforms.
The Economic Recovery Tax Act of 1981 had one aspect that is unusually useful for economic analysis. It provided an example of a clear-cut announcement of future policy actions at specified dates. This provides an opportunity to apply recent advances in the analysis of expectations dynamics to data that have been generated in an environment that includes such announced and anticipated policy action. A three-stage future tax cut was announced in the Tax Bill in March 1981. In a Keynesian model with liquidity-constrained consumers or investors, or with uncertainity, this would normally be expected to provide a stimulus to the economy when the tax cuts actually appear. But the financial markets could look ahead to the stimulus and the shift in the high-employment deficit brought about by the tax cuts, and their implications for bond prices and interest rates. In this paper we argue that this happened during the first half of 1981. As market participaits came to understand that the tax and budget actions of March 1981 implied a future shift of the high-employment-now "structural"-deficit by some 5 percent of GNP, they revised their expectations of future real interest rates upward. This caused a jump in real long-term rates then, in 1981. And, it also caused a sudden and unanticipated real appreciation of the dollar at the same time. The jump in real long-term interest rates and the dollar appreciation in the first half of 1981 were essential features of the recession that began in July 1981. This paper points out the possibility of a purely anticipatory recession. If the only policy action had been the fiscal announcement, and if goods markets are "Keynesian" but financial markets are forwardlooking, the announcement can cause a recession, which will end when the actual fiscal action begins to stimulate the economy. In the actual context of 1981, a shift toward monetary tightness also contributed to the recession.
The Economic Recovery Tax Act of 1981 had one aspect that is unusually useful for economic analysis. It provided an example of a clear-cut announcement of future policy actions at specified dates. This provides an opportunity to apply recent advances in the analysis of expectations dynamics to data that have been generated in an environment that includes such anticipated policy action.
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