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Does Inflation Targeting Matter? A Reassessment

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  • Luke Byrne Willard

    (Economics Department - Organisation for Economic Co-operation and Development)

Abstract

A number of countries have adopted inflation targeting and a substantial literature exists on the virtues of inflation targeting in reducing inflation (e.g. Bernanke et al. (1999)). However, results in the existing empirical literature conflict. This paper uses a number of identification approaches (instrumental variables, assumptions about heteroscedasticity, panel fixed effects and a potential natural experiment) to estimate the effect of inflation targeting on inflation for a sample of OECD countries. Generally, it finds the effect is small and insignificant. It also finds little evidence that inflation variability, inflation uncertainty, inflation volatility or inflation expectations fall with targeting suggesting that inflation targeting does not affect a number of variables likely to be of interest to policy makers.

Suggested Citation

  • Luke Byrne Willard, 2011. "Does Inflation Targeting Matter? A Reassessment," Post-Print hal-00688942, HAL.
    • Handle: RePEc:hal:journl:hal-00688942
    DOI: 10.1080/00036846.2011.564136
    Note: View the original document on HAL open archive server: https://hal.science/hal-00688942
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