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Inflation-Targeting, Flexible Exchange Rates and Macroeconomic Performance since the Great Recession

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  • Barnebeck Andersen, Thomas
  • Malchow-Møller, Nikolaj
  • Nordvig, Jens

Abstract

Has inflation targeting (IT) conferred benefits in terms of economic growth on countries that followed this particular monetary policy strategy during the crisis period 2007-12? This paper answers this question in the affirmative. Countries with an IT monetary regime with flexible exchange rates weathered the crisis much better than countries with other monetary regimes, predominantly countries with fixed exchange rates. Part of this difference in growth performance reflects differences in export performance during the initial years of the crisis, which in turn can be explained by real exchange rate depreciations. However, IT seems also to confer other benefits on the countries above and beyond the effects from currency depreciation.

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File URL: http://www.ceps.eu/system/files/WD394%20Andersen%20et%20al%20Inflation%20Targeting.pdf
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Paper provided by Centre for European Policy Studies in its series CEPS Papers with number 9116.

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Length: 29 pages
Date of creation: Mar 2014
Date of revision:
Handle: RePEc:eps:cepswp:9116

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  1. Fernanda Nechio, 2011. "Monetary policy when one size does not fit all," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue june13.
  2. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters, in: The Inflation-Targeting Debate, pages 249-282 National Bureau of Economic Research, Inc.
  3. George Tavlas & Harris Dellas & Alan Stockman, 2008. "The Classification and Perfomance of Alternative Exchange-Rate Systems," Working Papers 90, Bank of Greece.
  4. Benassy-Quere, Agnes & Coeure, Benoit & Jacquet, Pierre & Pisani-Ferry, Jean, 2010. "Economic Policy: Theory and Practice," OUP Catalogue, Oxford University Press, number 9780195322736, October.
  5. Ben S. Bernanke, 1994. "The Macroeconomics of the Great Depression: A Comparative Approach," NBER Working Papers 4814, National Bureau of Economic Research, Inc.
  6. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 97-116, Spring.
  7. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 312-318, February.
  8. Eichengreen, Barry, 2013. "Currency war or international policy coordination?," Journal of Policy Modeling, Elsevier, vol. 35(3), pages 425-433.
  9. Christophe André, 2010. "A Bird's Eye View of OECD Housing Markets," OECD Economics Department Working Papers 746, OECD Publishing.
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