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Does Inflation Targeting Affect the Dispersion of Inflation Expectations?

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  • CARLOS CAPISTRÁN
  • MANUEL RAMOS-FRANCIA

Abstract

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.

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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 42 (2010)
Issue (Month): 1 (02)
Pages: 113-134

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Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:1:p:113-134

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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  1. Gürkaynak, Refet S. & Levin, Andrew & Swanson, Eric T, 2006. "Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the US, UK and Sweden," CEPR Discussion Papers 5808, C.E.P.R. Discussion Papers.
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  7. Janet L. Yellen, 2003. "Monetary policy and uncertainty : adapting to a changing economy : overview panel," Proceedings, Federal Reserve Bank of Kansas City, pages 391-398.
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  12. Marco Vega & Diego Winkelried, 2005. "Inflation Targeting and Inflation Behavior: A Successful Story?," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
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Citations

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Cited by:
  1. repec:fce:doctra:13-03 is not listed on IDEAS
  2. Ramos-Francia, Manuel & Torres, Alberto, 2008. "Inflation dynamics in Mexico: A characterization using the New Phillips curve," The North American Journal of Economics and Finance, Elsevier, vol. 19(3), pages 274-289, December.
  3. Paul Hubert, 2011. "Central Bank Forecasts as an Instrument of Monetary Policy," Documents de Travail de l'OFCE 2011-23, Observatoire Francais des Conjonctures Economiques (OFCE).
  4. Hubert, Paul, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Open Access publications from Sciences Po info:hdl:2441/f4rshpf3v1u, Sciences Po.
  5. José J. Sidaoui & Manuel Ramos-Francia, 2008. "The monetary transmission mechanism in Mexico: recent developments," BIS Papers chapters, in: Bank for International Settlements (ed.), Transmission mechanisms for monetary policy in emerging market economies, volume 35, pages 363-394 Bank for International Settlements.
  6. Olivier Coibion & Yuriy Gorodnichenko, 2010. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," NBER Working Papers 16537, National Bureau of Economic Research, Inc.
  7. repec:fce:doctra:13-04 is not listed on IDEAS
  8. Man-Keung Tang & Xiangrong Yu, 2011. "Communication of Central Bank Thinking and Inflation Dynamics," IMF Working Papers 11/209, International Monetary Fund.
  9. Carrera, César, 2012. "Estimating Information Rigidity using Firms’ Survey Data," Working Papers 2012-004, Banco Central de Reserva del Perú.
  10. Carlos A. Carrasco & Jesús Ferreiro, 2011. "Inflation Targeting and Economic Performance: The Case of Mexico," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 58(5), pages 675-692, December.
  11. Paul Hubert, 2009. "Informational Advantage and Influence of Communicating Central Banks," Documents de Travail de l'OFCE 2009-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  12. Siok Kun Sek & Wai Mun Har, 2012. "Does Inflation Targeting Work in Emerging East-Asian Economies?," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 59(5), pages 599-608, December.

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