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The Effect of Inflation Targets on the Level of Expected Inflation in Five Countries

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Author Info
David Johnson (Wilfrid Laurier University)
Abstract

Did inflation targets reduce the level of expected inflation in Australia, Canada, New Zealand, Sweden, and the United Kingdom? In this note, predictions of forecasts by professional forecasters are constructed for five consecutive 12-month periods after the announcement of targets. These predictions use a variety of information variables known to forecasters at the time they make their forecasts. The results show that, after the announcement of targets, predicted forecasts are less than actual forecasts in Australia, Canada, New Zealand, and Sweden. This is evidence that targets reduced the level of expected inflation. No evidence of such effects is found in the United Kingdom. Copyright (c) 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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File URL: http://www.mitpressjournals.org/doi/pdfplus/10.1162/003465303772815952
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Publisher Info
Article provided by MIT Press in its journal Review of Economics and Statistics.

Volume (Year): 85 (2003)
Issue (Month): 4 (07)
Pages: 1076-1081
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Handle: RePEc:tpr:restat:v:85:y:2003:i:4:p:1076-1081

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  1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob de Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," DNB Working Papers 170, Netherlands Central Bank, Research Department. [Downloadable!]
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  2. Taner Yigit & Banu Demir, 2007. "Announcements and Credibility under Inflation Targeting," Departmental Working Papers 0705, Bilkent University, Department of Economics. [Downloadable!]
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  3. Philip Arestis & Luiz Fernando de Paula & Fernando Ferrari-Filho, 2006. "Inflation Targeting In Emerging Countries: The Case Of Brazil," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 42, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics]. [Downloadable!]
  4. Frederic S. Mishkin, 2006. "Monetary Policy Strategy: How Did We Get Here?," NBER Working Papers 12515, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  5. Roman Horvath, 2008. "Reasons of Undershooting the Inflation Target in the Czech Republic: The Role of Inflation Expectations," Occasional Publications - Chapters in Edited Volumes, in: Katerina Smidkova (ed.), Evaluation of the Fulfilment of the CNB's Inflation Targets 1998-2007, chapter 10, pages 131-142 Czech National Bank, Research Department. [Downloadable!]
  6. Taner Yigit, 2007. "Inflation Targeting : An Indirect Approach to Assess the Direct Impact," Departmental Working Papers 0706, Bilkent University, Department of Economics. [Downloadable!]
  7. Juraj Antal & Zuzana Antonicova & Jan Babecky & Michal Hlavacek & Tomas Holub & Roman Horvath & Jarek Hurnik & Ondra Kamenik & Karel Musil & Jiri Podpiera & Lubos Ruzicka & Michal Skorepa & Katerina S, 2008. "Evaluation of the Fulfilment of the CNB's Inflation Targets 1998-2007," Occasional Publications - Edited Volumes, Czech National Bank, Research Department, number 01 edited by Katerina Smidkova. [Downloadable!]
  8. Toshitaka Sekine & Yuki Teranishi, 2008. "Inflation Targeting and Monetary Policy Activism," IMES Discussion Paper Series 08-E-13, Institute for Monetary and Economic Studies, Bank of Japan. [Downloadable!]
  9. 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!]
  10. Sujit Kapadia, 2005. "Inflation-Target Expectations and Optimal Monetary Policy," Money Macro and Finance (MMF) Research Group Conference 2005 81, Money Macro and Finance Research Group. [Downloadable!]
  11. Alvaro Angeriz & Philip Arestis, 2007. "Assessing Inflation Targeting Through Intervention Analysis," Money Macro and Finance (MMF) Research Group Conference 2006 87, Money Macro and Finance Research Group. [Downloadable!]
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  12. Aliyu, Shehu Usman Rano & Englama, Abwaku, 2009. "Is Nigeria Ready for Inflation Targeting?," MPRA Paper 14870, University Library of Munich, Germany, revised 26 Apr 2009. [Downloadable!]
  13. Sujit Kapadia, 2005. "Inflation-Target Expectations and Optimal Monetary Policy," Economics Series Working Papers 227, University of Oxford, Department of Economics. [Downloadable!]
  14. 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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