In this paper, we examine the effect of having an inflation targeting framework on the dispersion of inflation forecasts from professional forecasters. We use a panel data set of 25 countries-including 14 inflation targeters-with 16 years of monthly information. We find that the dispersion of long-run inflation expectations is smaller in targeting regimes after controlling for country-specific effects, time-specific effects, the level and the variance of inflation, disinflation periods, and global inflation. On average, the full effect is not observed until the third year after implementation of inflation targeting. When we differentiate between developed and developing countries, the dispersion of inflation expectations after inflation targeting is smaller and statistically significant only in developing countries. Copyright (c) 2010 The Ohio State University.
When a central bank commits credibly to a nonaccommodative monetary policy, observed inflation should be a stationary process. In countries where, for a variety of reasons, the determinants of inflation could lead it to follow a nonstationary process, the adoption of a credible disinflationary programme should therefore induce a fundamental change in the stochastic process governing inflation and, in particular, should diminish its persistence. This article studies the time-series properties of both inflation and core inflation during the 1995-2006 period for the Mexican economy, using recently developed techniques to detect a change in the persistence of economic time series. Consistently with the adoption of an inflation-targeting framework, the results suggest that inflation in Mexico seems to have indeed switched from a nonstationary to a stationary process around the end of year 2000 or the beginning of 2001.
La serie de Documentos de Investigación del Banco de México divulga resultados preliminares de trabajos de investigación económica realizados en el Banco de México con la finalidad de propiciar el intercambio y debate de ideas. El contenido de los Documentos de Investigación, así como las conclusiones que de ellos se derivan, son responsabilidad exclusiva de los autores y no reflejan necesariamente las del Banco de México.The Working Papers series of Banco de México disseminates preliminary results of economic research conducted at Banco de México in order to promote the exchange and debate of ideas. The views and conclusions presented in the Working Papers are exclusively the responsibility of the authors and do not necessarily reflect those of Banco de México. 2006-11 2006-11 Inflation Dynamics in Latin America Documento de Investigación Working Paper AbstractWe analyze inflation's persistence in the 1980-2006 period for the ten largest Latin American economies using univariate time-series techniques. Although the estimated degree of inflation persistence appears to be different across countries, for the region as a whole the persistence seems to be very high. However, the estimated degree of persistence falls in all countries once we permit structural breaks in the mean of inflation. The timing of these breaks coincides with shifts in the monetary policy regimes and is similar across countries. Regardless of the changes in the mean, the degree of persistence appears to be decreasing in the region, even though for some countries persistence does not seem to be changing. Keywords: Inflation, Inflation Persistence, Latin America, Monetary Policy, Multiple Breaks, Time Series. JEL Classification: E31, E42, C22Resumen Analizamos la persistencia de la inflación en el periodo 1980-2006 para los diez países más grandes de América Latina utilizando técnicas de series de tiempo univariadas. A pesar de que el grado de persistencia estimado parece ser diferente entre países, para la región en general la persistencia parece ser muy alta. Sin embargo, el grado de persistencia estimado disminuye en todos los países si controlamos por cambios estructurales en la media de la inflación. Las fechas de estos cambios estructurales coinciden con cambios en los regímenes de política monetaria y son similares entre países. Sin importar los cambios en la media, el grado de persistencia parece estar disminuyendo en la región, a pesar de que en algunos países la persistencia no parece estar cambiando.
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