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Inflation Targeting and Inflation Persistence

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  • 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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Bibliographic Info

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

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

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

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