Thisresearch examined whether the uncertainty associated with the volatility of inflation impacted unemployment in the G7 countries over the last two decades.The results indicate that inflation vari ability had a significant short-run effect upon the unemployment rate in Canada, France, Italy, and the US while no effect was found for Germany, Japan, or the UK. However, consistent with economic the ory, we find no evidence of a long-run trade-off between inflation variability and unemployment.
This study makes use of a dynamic Taylor-type model to examine the conduct of monetary policy by central banks that profess to engage in inflation targeting. Previous research regarding inflation targeting and Taylor-type rules is reviewed and a dynamic Taylor-type model is developed. Tests for regime shifts upon the adoption of inflation targeting indicate a significant change in policy in each of the nations in the study for which sufficient data were available. Next, the central bank reaction functions were estimated. Results suggest that most of the central banks conducted a policy of inflation targeting by seeking to contain inflationary pressures rather than reacting to current inflation. Copyright 2003 The University of Melbourne, Melbourne Institute of Applied Economic and Social Research.
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