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Inflation Targeting and Inflation Persistence

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Author Info

  • George J. Bratsiotis
  • Jakob Madsen
  • Christopher Martin

Abstract

This paper argues that the adoption of an inflation target reduces the persistence of inflation.We develop the theoretical literature on inflation persistence by introducing a Taylor rule for monetary policy into a model of persistence and showing that inflation targets reduce inflation persistence. We investigate changes in the time series properties of inflation in seven countries that introduced inflation targets in the late 1980s or early 1990s. We find that the persistence of inflation is greatly reduced or eliminated following the introduction of inflation targets.

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File URL: http://www.brunel.ac.uk/329/efwps/02-12.pdf
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Bibliographic Info

Paper provided by Economics and Finance Section, School of Social Sciences, Brunel University in its series Economics and Finance Discussion Papers with number 02-12.

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Length: 19 pages
Date of creation: May 2002
Date of revision:
Handle: RePEc:bru:bruedp:02-12

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Postal: Brunel University, Uxbridge, Middlesex UB8 3PH, UK

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Cited by:
  1. Paul Castillo & Alberto Humala & Vicente Tuesta, 2007. "Monetary Policy, Regime Shifts, and Inflation Uncertainty in Peru (1949-2006)," Working Papers 2007-005, Banco Central de Reserva del Perú.
  2. Nunziata, Luca & Bowdler, Christopher, 2005. "Inflation Adjustment and Labour Market Structures: Evidence from a Multi-Country Study," IZA Discussion Papers 1510, Institute for the Study of Labor (IZA).
  3. A. Kontonikas, 2002. "Inflation and Inflation Uncertainty in the United Kingdom: Evidence from GARCH modelling," Public Policy Discussion Papers 02-28, Economics and Finance Section, School of Social Sciences, Brunel University.

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