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Inflation Targeting and the Inflation Process: Lessons from an Open Economy

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  • Guy Debelle
  • Jenny Wilkinson

Abstract

In an open economy inflation-targeting framework, whether policy makers should target aggregate or non-traded inflation depends on the structural relationships in the economy. This paper shows that in a small empirical model of the Australian economy, it makes little difference which measure is targeted. This conclusion is reinforced by the significant changes to the inflation process that the paper suggests have occurred over the past two decades: the effect of exchange rate changes on inflation appears to have become more muted and the inflation process appears to have become better anchored.

Suggested Citation

  • Guy Debelle & Jenny Wilkinson, 2001. "Inflation Targeting and the Inflation Process: Lessons from an Open Economy," Working Papers Central Bank of Chile 111, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:111
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    File URL: https://www.bcentral.cl/documents/33528/133326/DTBC_111.pdf
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    References listed on IDEAS

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    2. Chris Ryan & Christopher Thompson, 2000. "Inflation Targeting and Exchange Rate Fluctuations in Australia," RBA Research Discussion Papers rdp2000-06, Reserve Bank of Australia.
    3. Laurence M. Ball, 1999. "Policy Rules for Open Economies," NBER Chapters, in: Monetary Policy Rules, pages 127-156, National Bureau of Economic Research, Inc.
    4. Kuttner, Kenneth N. & Posen, Adam S., 1999. "Does talk matter after all? Inflation targeting and central bank behavior," CFS Working Paper Series 1999/04, Center for Financial Studies (CFS).
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    7. Meredith Beechey & Nargis Bharucha & Adam Cagliarini & David Gruen & Christopher Thompson, 2000. "A Small Model of the Australian Macroeconomy," RBA Research Discussion Papers rdp2000-05, Reserve Bank of Australia.
    8. Nargis Bharucha & Christopher Kent, 1998. "Inflation Targeting in a Small Open Economy," RBA Research Discussion Papers rdp9807, Reserve Bank of Australia.
    9. John Pitchford, 1993. "The Exchange Rate and Macroeconomic Policy in Australia," RBA Annual Conference Volume (Discontinued), in: Adrian Blundell-Wignall (ed.),The Exchange Rate, International Trade and the Balance of Payments, Reserve Bank of Australia.
    10. Dwyer, Jacqueline & Kent, Christopher & Pease, Andrew, 1994. "Exchange Rate Pass-Through: Testing the Small Country Assumption for Australia," The Economic Record, The Economic Society of Australia, vol. 70(211), pages 408-423, December.
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    1. Ferro, Gustavo, 2007. "Metas de inflación ¿qué hay de nuevo bajo el sol? [Inflation Targeting. What's new under the sun?]," MPRA Paper 15069, University Library of Munich, Germany, revised 11 Mar 2008.

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