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Does Inflation Targeting Make a Difference?

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  • Frederic S. Mishkin
  • Klaus Schmidt-Hebbel

Abstract

Yes, as inferred from panel evidence for inflation-targeting countries and a control group of high-achieving industrial countries that do not target inflation. Our evidence suggests that inflation targeting helps countries achieve lower inflation in the long run, have a smaller inflation response to oil-price and exchange-rate shocks, strengthen monetary policy independence, improve monetary policy efficiency, and obtain inflation outcomes closer to target levels. Some benefits of inflation targeting are larger when inflation targeters have achieved disinflation and are able to make their inflation targets stationary. Despite these favorable results for inflation targeting, our evidence generally does not suggest that countries that adopt inflation targeting have attained better monetary policy performance relative to our control group of highly successful non-inflation targeters. However, inflation targeting does seem to help all country groups to move toward the performance of the control group. The performance attained by industrial-country inflation targeters generally dominates the performance of emerging-economy inflation targeters and is similar to that of industrial non-inflation targeting countries.

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Bibliographic Info

Paper provided by Czech National Bank, Research Department in its series Working Papers with number 2006/13.

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Date of creation: Dec 2006
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Handle: RePEc:cnb:wpaper:2006/13

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Keywords: Inflation targeting; monetary policy.;

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References

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  1. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
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  6. Nicoletta Batini & Douglas Laxton, 2007. "Under What Conditions Can Inflation Targeting Be Adopted? The Experience of Emerging Markets," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 12, pages 467-506 Central Bank of Chile.
  7. Stephen G. Cecchetti & Alfonso Flores-Lagunes & Stefan Krause, 2006. "Has Monetary Policy become more Efficient? a Cross-Country Analysis," Economic Journal, Royal Economic Society, vol. 116(511), pages 408-433, 04.
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  1. Po co bankom centralnym cel inflacyjny
    by k.mokrzycka in Obserwator Finansowy on 2012-02-27 05:29:46
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