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 26 countries -including 14 inflation targeters- with monthly information from the last 16 years. We find that the dispersion of long-run inflation expectations is lower in targeting regimes after controlling for country-specific effects, time-specific effects, initial dispersion, the level and the variance of inflation, disinflation periods, and global inflation. When we differentiate between developed and developing countries, we find different dynamics for each group. In particular, the mentioned effect of inflation targeting seems to be present only on the developing countries.
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Paper provided by Banco de México in its series Working Papers with number
2007-11.
Find related papers by JEL classification: E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data