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Inflation Targeting and Output Growth: Empirical Evidence for the European Union

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  • International Monetary Fund

Abstract

This paper evaluates the performance of two alternative policy rules, a forward-looking rule and a spontaneous adjustment rule, under alternative inflation targets, in terms of output losses in a macroeconomic model, using European Union data. The simulations suggest that forward-looking rules contribute to macroeconomic stability and monetary policy credibility, and that a positive inflation target, as opposed to zero inflation, leads to higher and less volatile output. These results are robust to changes in the specification of the model and time period. The same methodology applied to individual countries supports country-specific flexible inflation targeting.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/89.

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Length: 17
Date of creation: 01 May 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/89

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Related research

Keywords: Inflation targeting; European Union;

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References

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Citations

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Cited by:
  1. Antonio Forte, 2010. "The European Central Bank, the Federal Reserve and the Bank of England: Is the Taylor Rule a useful benchmark for the last decade?," Journal of Economics and Econometrics, Economics and Econometrics Research Institute (EERI), Brussels, vol. 53(2), pages 1-31.
  2. Magda Kandil, 2009. "Public Spending and the Macroeconomy: Evidence from Developing and Developed Countries," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 8(2), pages 133-158, August.
  3. Forte, Antonio, 2009. "The stability of the inflation rate in the Euro area: the role of Globalization and labour market," MPRA Paper 16587, University Library of Munich, Germany.

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