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Inflation Dynamics and Monetary Strategies: Evidence from Six Industrialized Countries

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Author Info
Johannes Groeneveld
Kees Koedijk
Clemens Kool
Abstract

In this paper we address the issue whether a switch to inflation targeting can help build monetary policy credibility and can substitute for a track record of low inflation. To this end, we empirically evaluate the success of inflation targeting in Canada, New Zealand and the United Kingdom and investigate to what extent the joint dynamic processes of inflation and nominal interest rates in these three countries have experienced a structural break at the time of the regime switch to inflation targeting. The experience of Canada, New Zealand and the United Kingdom is matched with the United States, Australia and Germany. We find that the effectiveness of the direct inflation targeting approach to quickly increase low-inflation credibility so far is ambiguous and that this strategy is not clearly superior to intermediate monetary strategies. Copyright Kluwer Academic Publishers 1998

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File URL: http://hdl.handle.net/10.1023/A:1008223206085
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Publisher Info
Article provided by Springer in its journal Open Economies Review.

Volume (Year): 9 (1998)
Issue (Month): 1 (January)
Pages: 21-38
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Handle: RePEc:kap:openec:v:9:y:1998:i:1:p:21-38

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Related research
Keywords: credibility; monetary policy; inflation targeting; structural breaks;

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. Svensson, Lars E O, 1995. "The Swedish Experience of an Inflation Target," CEPR Discussion Papers 1103, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  2. Rogoff, Kenneth, 1985. "The Optimal Degree of Commitment to an Intermediate Monetary Target," The Quarterly Journal of Economics, MIT Press, vol. 100(4), pages 1169-89, November. [Downloadable!] (restricted)
  3. Mark P. Taylor & Pierre-Richard Agénor, 1991. "Testing for Credibility Effects," IMF Working Papers 91/110, International Monetary Fund.
  4. Canzoneri, Matthew B, 1985. "Monetary Policy Games and the Role of Private Information," American Economic Review, American Economic Association, vol. 75(5), pages 1056-70, December. [Downloadable!] (restricted)
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  5. Walsh, Carl E, 1995. "Optimal Contracts for Central Bankers," American Economic Review, American Economic Association, vol. 85(1), pages 150-67, March. [Downloadable!] (restricted)
  6. Ball, Laurence, 1995. "Disinflation with imperfect credibility," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 5-23, February. [Downloadable!] (restricted)
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  7. Persson, Torsten & Tabellini, Guido, 1993. "Designing institutions for monetary stability," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 53-84, December. [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. Dai, Meixing, 2009. "The Design of a 'Two-Pillar' Monetary Policy Strategy," Economics Discussion Papers 2009-29, Kiel Institute for the World Economy. [Downloadable!]
    Other versions:
  2. Baltensperger, Ernst & Fischer, Andreas M & Jordan, Thomas J., 2006. "Strong Goal Independence and Inflation Targets," CEPR Discussion Papers 5915, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  3. Dai, Meixing, 2009. "On the role of money growth targeting under inflation targeting regime," MPRA Paper 13780, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. 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!]
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