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Assessing inflation targeting through intervention analysis

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  • Alvaro Angeriz
  • Philip Arestis

Abstract

The aim of this paper is to deal with the empirical aspects of the 'new' monetary policy framework, known as Inflation Targeting. Applying Intervention Analysis to multivariate Structural Time Series models, which avoids certain biases encountered in the use of conventional regression estimators, new empirical evidence is produced in the case of a number of OECD countries. These results demonstrate that although Inflation Targeting has gone hand-in-hand with low inflation, the strategy was introduced well after inflation had begun its downward trend. But, then, Inflation Targeting 'locks in' low inflation rates. The evidence produced in this paper suggests that non-Inflation Targeting central banks have also been successful on this score. Copyright 2008 , Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 60 (2008)
Issue (Month): 2 (April)
Pages: 293-317

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Handle: RePEc:oup:oxecpp:v:60:y:2008:i:2:p:293-317

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  1. Laurence Ball & Niamh Sheridan, 2003. "Does Inflation Targeting Matter?," NBER Working Papers 9577, National Bureau of Economic Research, Inc.
  2. Harvey, Andrew & Snyder, Ralph D., 1990. "Structural time series models in inventory control," International Journal of Forecasting, Elsevier, vol. 6(2), pages 187-198, July.
  3. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile.
  4. Gabriel Sterne, 2002. "Inflation Targets in a Global Context," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 2, pages 023-078 Central Bank of Chile.
  5. David Johnson, 2003. "The Effect of Inflation Targets on the Level of Expected Inflation in Five Countries," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1076-1081, November.
  6. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372 Central Bank of Chile.
  7. Mishkin, F.S., 1998. "International Experiences with Different Monetary Policy Regimes," Papers 648, Stockholm - International Economic Studies.
  8. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
  9. Harvey, A C & Jaeger, A, 1993. "Detrending, Stylized Facts and the Business Cycle," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 8(3), pages 231-47, July-Sept.
  10. Jared Bernstein & Andrew Harvey, 2000. "Measurement and Testing of Inequality from Time Series of Deciles with an Application to U.S. Wages," Econometric Society World Congress 2000 Contributed Papers 0861, Econometric Society.
  11. Andrew C. Harvey & Thomas M. Trimbur, 2003. "General Model-Based Filters for Extracting Cycles and Trends in Economic Time Series," The Review of Economics and Statistics, MIT Press, vol. 85(2), pages 244-255, May.
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