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Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions

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  • V. Anton Muscatelli
  • Patrizio Tirelli
  • Carmine Trecroci

Abstract

We estimate forward-looking interest-rate reaction functions for the G3 economies and for a group of countries which recently adopted inflation targets for the period 1975-97. We employ alternative measures for expected inflation and the output gap compared to the existing literature and estimate our models using recursive methods. Very few significant shifts in the responsiveness of monetary instruments are detected in the G3 countries, but significant differences emerge between these economies in the behaviour of the monetary authorities. In addition, the formal introduction of inflation targeting in countries like the UK, Sweden, Canada and New Zealand post-dates changes in the way in which central banks react to the objectives of economic policy.
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  • V. Anton Muscatelli & Patrizio Tirelli & Carmine Trecroci, 1998. "Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions," Working Papers 9815, Business School - Economics, University of Glasgow, revised Aug 1998.
    • Handle: RePEc:gla:glaewp:9815
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    Cited by:

    1. Nicoletta Batini, 2006. "Euro area inflation persistence," Empirical Economics, Springer, vol. 31(4), pages 977-1002, November.
    2. Paolo Chiades & Leonardo Gambacorta, 2004. "The Bernanke and Blinder Model in an Open Economy: The Italian Case," German Economic Review, Verein für Socialpolitik, vol. 5(1), pages 1-34, February.
    3. Nicoletta Batini, 2006. "Euro area inflation persistence," Empirical Economics, Springer, vol. 31(4), pages 977-1002, November.

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