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A Note on Inflation Targeting

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  • Ching-Chong Lai
  • Juin-Jen Chang

Abstract

The authors present a pedagogical graphical exposition to illustrate the stabilizing effect of price target zones. Based on a textbook AD-AS apparatus, they find that authorities' commitment to defend a price target zone will affect the public's inflation expectations and, in turn, reduce actual inflation. They also find that, when the economy experiences supply shocks, the announcement that the monetary authorities intend to defend a price target zone will reduce the variability of domestic prices but raise the variability of domestic output relative to a free-price regime. However, when the economy experiences demand shocks, a price target zone tends to lower the variability of both domestic prices and out-put relative to a free-price regime.

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File URL: http://hdl.handle.net/10.1080/00220480109596115
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal The Journal of Economic Education.

Volume (Year): 32 (2001)
Issue (Month): 4 (January)
Pages: 369-380

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Handle: RePEc:taf:jeduce:v:32:y:2001:i:4:p:369-380

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Cited by:
  1. Sek Siok Kun, 2012. "Evaluating the performance of inflation targeting regime in three Asian economies," International Econometric Review (IER), Econometric Research Association, vol. 4(2), pages 82-98, September.
  2. Lai, Ching-chong & Fang, Chung-rou & Chang, Juin-jen, 2008. "Volatility trade-offs in exchange rate target zones," International Review of Economics & Finance, Elsevier, vol. 17(3), pages 366-379.
  3. 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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