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Inflation-target design: changing inflation performance and persistence in industrial countries

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Author Info
Pierre L. Siklos

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Abstract

This paper explores the behavior of inflation in countries that formally target inflation - relative to countries with historically good inflation records - but, which do not target the rate of change in the consumer price index (CPI). Pierre L. Siklos examines the design of inflation targets and the circumstances under which they were introduced. The author also asks, via some simple econometric tests, whether the introduction of targets had any statistically discernible impact on inflation persistence. Additionally, Siklos questions whether inflation persistence changed in the select countries that have no formal inflation targets. Finally, the author assesses, via a discussion of the behavior of private sector inflation forecasts, the credibility of inflation targets. Descriptive and econometric evidence suggest that the mere adoption of an inflation target is insufficient in delivering a consistently better inflation performance; nor does it significantly affect inflationary expectations. It remains to be seen whether inflation targeting can withstand pressures stemming from sustained breaches of targets, should inflation policies in the major industrialized countries begin to diverge. After all, the current disinflation, as this study has shown, is an international phenomenon.

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Publisher Info
Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (1999)
Issue (Month): Mar ()
Pages: 46-58
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Handle: RePEc:fip:fedlrv:y:1999:i:mar:p:46-58:n:2

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Related research
Keywords: Inflation (Finance) ; Economic policy;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Bernanke, Ben S & Woodford, Michael, 1997. "Inflation Forecasts and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 653-84, November.
    Other versions:
  2. Alogoskoufis, George S & Smith, Ron, 1991. "The Phillips Curve, the Persistence of Inflation, and the Lucas Critique: Evidence from Exchange-Rate Regimes," American Economic Review, American Economic Association, vol. 81(5), pages 1254-75, December. [Downloadable!] (restricted)
  3. Michael D. Bordo, 1993. "The Bretton Woods International Monetary System: A Historical Overview," NBER Chapters, in: A Retrospective on the Bretton Woods System: Lessons for International Monetary Reform, pages 3-108 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  4. Guy Debelle, 1996. "The Ends of Three Small Inflations: Australia, New Zealand and Canada," Canadian Public Policy, University of Toronto Press, vol. 22(1), pages 56-78, March. [Downloadable!] (restricted)
  5. Johnson, David R & Siklos, Pierre L, 1996. "Political and Economic Determinants of Interest Rate Behavior: Are Central Banks Different?," Economic Inquiry, Oxford University Press, vol. 34(4), pages 708-29, October.
  6. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June. [Downloadable!] (restricted)
    Other versions:
  7. Pierre Fortin, 1996. "The Great Canadian Slump," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 761-87, November. [Downloadable!] (restricted)
  8. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 9-110. [Downloadable!]
    Other versions:
  9. Burdekin, Richard C K & Siklos, Pierre L, 1999. "Exchange Rate Regimes and Shifts in Inflation Persistence: Does Nothing Else Matter?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 235-47, May.
    Other versions:
  10. Patricia S. Pollard, 1995. "EMU: will it fly?," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 3-16. [Downloadable!]
  11. Charles Freedman & Tiff Macklem, 1998. "A Comment on "The Great Canadian Slump"," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 646-665, August. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Taner Yigit, 2007. "Inflation Targeting : An Indirect Approach to Assess the Direct Impact," Departmental Working Papers 0706, Bilkent University, Department of Economics. [Downloadable!]
  2. Alfred A. Haug & Pierre L. Siklos, 2002. "The Term Spread International Evidence of Non-Linear Adjustment," Working Papers 2002_08, York University, Department of Economics, revised Jul 2004. [Downloadable!]
  3. J. S. Ferris & J. A. Galbraith, 2003. "Indirect convertibility as a money rule for inflation targeting," Applied Financial Economics, Taylor and Francis Journals, vol. 13(10), pages 753-761, October. [Downloadable!] (restricted)
  4. Nicholas Apergis & Stephen M. Miller & Alexandros Panethimitakis & Athanasios Vamvakidis, 2005. "Inflation Targeting and Output Growth: Empirical Evidence for the European Union," IMF Working Papers 05/89, International Monetary Fund. [Downloadable!]
  5. Pierre L. Siklos, 2003. "Assessing the Impact of Changes in Transparency and Accountability at the Bank of Canada," Canadian Public Policy, University of Toronto Press, vol. 29(3), pages 279-299, September. [Downloadable!] (restricted)
  6. Rose, Andrew K, 2006. "A Stable International Monetary System Emerges: Bretton Woods, Reversed," CEPR Discussion Papers 5854, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  7. Nicholas Apergis & Stephen M. Miller & Alexandros Panethimitakis & Athanassios Vamvakidis, 2005. "Inflation Targeting and Output Growth: Evidence from Aggregate European Data," Working papers 2005-06, University of Connecticut, Department of Economics. [Downloadable!]
  8. Viktor Kotlan & David Navratil, 2003. "Inflation Targeting as a Stabilisation Tool: Its Design and Performance in the Czech Republic," Macroeconomics 0310006, EconWPA. [Downloadable!]
  9. Pierre Siklos, 2007. "Revisiting the Coyne Affair: A Singular Event That Changed the Course of Canadian Monetary History," Working Papers eg0047, Wilfrid Laurier University, Department of Economics, revised 2007. [Downloadable!]
  10. Andrew K. Rose, 2006. "A Stable International Monetary System Emerges: Inflation Targeting is Bretton Woods, Reversed," NBER Working Papers 12711, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  11. Kursat Kunter & Norbert Janssen, 2002. "Credibility Of Monetary Regimes : Is Inflation Targeting Different?," Discussion Papers 0201, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
  12. Pierre L. Siklos & Diana N. Weymark, 2009. "Has Inflation Targeting Improved Monetary Policy? Evaluating Policy Effectiveness in Australia, Canada, and New Zealand," Working Papers 0906, Department of Economics, Vanderbilt University. [Downloadable!]
  13. A. Kontonikas, 2002. "Inflation and Inflation Uncertainty in the United Kingdom: Evidence from GARCH modelling," Economics and Finance Discussion Papers 02-28, Economics and Finance Section, School of Social Sciences, Brunel University. [Downloadable!]
    Other versions:
  14. Eijffinger, Sylvester C W & van der Cruijsen, Carin A B, 2007. "The Economic Impact of Central Bank Transparency: A Survey," CEPR Discussion Papers 6070, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  15. Robert Dittmar & William T. Gavin & Finn E. Kydland, 1999. "Price-level uncertainty and inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 23-34. [Downloadable!]
  16. J. Stephen Ferris & J.A. Galbraith, 2000. "Indirect Convertibility, Inflation Targeting, and Monetary Policy Rules," Carleton Economic Papers 00-10, Carleton University, Department of Economics. [Downloadable!]
  17. Sergio Clavijo, 2000. "Reflexiones Sobre Política Monetaria E "Inflación Objetivo" En Colombia," BORRADORES DE ECONOMIA 003423, BANCO DE LA REPÚBLICA. [Downloadable!]
  18. Michael J. Dueker & Andreas M. Fischer, 2006. "Do inflation targeters outperform non-targeters?," Review, Federal Reserve Bank of St. Louis, issue Sep, pages 431-450. [Downloadable!]
  19. Mardi Dungey & John Pitchford, 1999. "The Steady Inflation Rate of Economic Growth," CEPR Discussion Papers 414, Centre for Economic Policy Research, Research School of Social Sciences, Australian National University. [Downloadable!]
    Other versions:
  20. Sergio Clavijo, . "Reflexiones Sobre Política Monetaria e "Inflación Objetivo" en Colombia," Borradores de Economia 141, Banco de la Republica de Colombia. [Downloadable!]
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