Inflation targeting makes the difference: Novel evidence on inflation stabilization

Bleich, Dirk; Fendel, Ralf; Rülke, Jan-Christoph

doi:10.1016/j.jimonfin.2011.12.012

Cited by 13 publications

(2 citation statements)

References 25 publications

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“…On the one hand, several studies claim that ITCBs have been successful in various dimensions. According to some of these studies, IT has played a significant role in bringing inflation down and stabilizing inflation fluctuations, lowering inflation volatility (Debelle, 1997;Corbo et al, 2002;Pétursson, 2005;Brito and Bysted, 2010;Bleich et al, 2012). Inflation targets allowed a larger disinflation with smaller forecast errors (Johnson, 2002) and coincide with an (often downward) shift in expected inflation and the anchoring of long-run inflation expectations (Johnson, 2003;Levin, et al, 2004;.…”

Section: Introductionmentioning

confidence: 99%

Just Do IT? An Assessment of Inflation Targeting in a Global Comparative Case Study

Duncan¹,

Martínez‐García²,

Toledo³

2022

gwp

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This paper proposes new measures of the effectiveness of inflation targeting (IT) and evaluates its main drivers in a (large) sample of advanced economies (AEs) and emerging market and developing economies (EMDEs). Using synthetic control methods, we find that IT has heterogeneous effects on inflation across countries. The gains shifting the level of inflation (generally downwards) are modest and smaller in AEs than are those in EMDEs. All such gains are statistically significant in one out of three economies approximately. Second, statistically significant differences in keeping inflation close to target under IT (compared with estimated counterfactuals) can be detected more broadly in nearly half of the economies. Third, IT can be a source of economic resilience that helped cushion inflation fluctuations during the 2007-09 Global Financial Crisis with statistically significant gains mostly found among EMDEs (in two out of three of these economies). Finally, we find that IT effectiveness-measured by the dynamic treatment effect and the absolute deviations of both observed and synthetic inflation from target-is significantly correlated with indices of exchange rate stability and monetary policy independence, especially among EMDEs.

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Section: Introductionmentioning

confidence: 99%

Just Do IT? An Assessment of Inflation Targeting in a Global Comparative Case Study

Duncan¹,

Martínez‐García²,

Toledo³

2022

gwp

View full text Add to dashboard Cite

show abstract

“…To account for the forward-looking nature and to accurately approximate central banks' information set, we apply inflation and growth expectations which are publicly available in a forecast poll by Consensus Economics. This data set has several advantages and is, therefore, suited to estimate central bank reaction functions (Gorter et al 2008, Bleich et al 2012a. First, the participants of this survey work with private sector institutions within the respective country.…”

Section: Introductionmentioning

confidence: 99%