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Inflation Targeting and Communication

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Author Info

  • Katerina Smídková
  • Viktor Kotlán
  • David Navrátil
  • Ales Bulir

Abstract

Inflation-targeting central banks have a respectable track record at explaining their policy actions and corresponding inflation outturns. Using a simple forward-looking policy rule and an assessment of inflation reports, we provide a new methodology for the empirical evaluation of consistency in central bank communication. We find that the three communication tools-inflation targets, inflation forecasts, and verbal assessments of inflation factors contained in quarterly inflation reports-provided a consistent message in five out of six observations in our 2000-05 sample of Chile, the Czech Republic, Hungary, Poland, Thailand, and Sweden.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/234.

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Length: 42
Date of creation: 01 Oct 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/234

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Related research

Keywords: Inflation targeting; Emerging markets; Economic forecasting; inflation; monetary policy; central bank; inflation forecasts; inflation target; national bank; monetary policy decisions; monetary fund; inflation-targeting; real interest rate; foreign exchange; inflationary pressures; price stability; forecasting inflation; monetary policy transparency; rate of inflation; monetary stance; expectations of inflation; experience of inflation; nominal interest rate; monetary policy strategy; inflation performance;

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References

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  1. Vittorio Corbo & Óscar Landerretche & Klaus Schmidt-Hebbel, 2002. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 5, pages 221-270 Central Bank of Chile.
  2. Stephen G. Cecchetti & Michael Ehrmann, 2002. "Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes," Central Banking, Analysis, and Economic Policies Book Series, Central Bank of Chile, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274 Central Bank of Chile.
  3. Athanasios Orphanides & David W. Wilcox, 1996. "The opportunistic approach to disinflation," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 96-24, Board of Governors of the Federal Reserve System (U.S.).
  4. Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," Discussion Papers, Columbia University, Department of Economics 0708-10, Columbia University, Department of Economics.
  5. Alina Carare & Mark R. Stone, 2003. "Inflation Targeting Regimes," IMF Working Papers 03/9, International Monetary Fund.
  6. Adam Gersl & Tomás Holub, 2006. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Contemporary Economic Policy, Western Economic Association International, Western Economic Association International, vol. 24(4), pages 475-491, October.
  7. Charles Freedman & Douglas Laxton, 2009. "Why Inflation Targeting?," IMF Working Papers 09/86, International Monetary Fund.
  8. repec:nbr:nberwo:12876 is not listed on IDEAS
  9. Jan Filacek, 2007. "Why and How to Assess Inflation Target Fulfilment," Working Papers, Czech National Bank, Research Department 2007/11, Czech National Bank, Research Department.
  10. George Evans & Eran Guse & Seppo Honkapohja, 2007. "Liquidity Traps, Learning and Stagnation," Kiel Working Papers 1341, Kiel Institute for the World Economy.
  11. Viktor Kotlán & David Navrátil, 2003. "Inflation Targeting as a Stabilization Tool: Its Design and Performance in the Czech Republic," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 53(5-6), pages 220-242, May.
  12. Richard Dennis & John C. Williams, 2007. "Monetary policy, transparency, and credibility: conference summary," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue may25.
  13. Katerina Smidkova & Miroslav Hrncir & Andrew Yurkovsky, 2000. "Transition to the Strategy of Inflation Targeting," Eastern European Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 38(6), pages 13-42, December.
  14. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
  15. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  16. Rozkrut, Marek & Rybinski, Krzysztof & Sztaba, Lucyna & Szwaja, Radoslaw, 2007. "Quest for central bank communication: Does it pay to be "talkative"?," European Journal of Political Economy, Elsevier, Elsevier, vol. 23(1), pages 176-206, March.
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Citations

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Cited by:
  1. Nicholas Herro & James Murray, 2013. "Dynamics of Monetary Policy Uncertainty and the Impact on the Macroeconomy," Economics Bulletin, AccessEcon, vol. 33(1), pages 257-270.
  2. Ales Bul�r & Martin Cih�k & David-Jan Jansen, 2011. "Clarity of Central Bank Communication About Inflation," DNB Working Papers, Netherlands Central Bank, Research Department 333, Netherlands Central Bank, Research Department.
  3. Herro, Nicholas & Murray, James, 2011. "Dynamics of Monetary Policy Uncertainty and the Impact on the Macroeconomy," MPRA Paper 30387, University Library of Munich, Germany.
  4. Juraj Antal & Michal Hlaváèek & Tomáš Holub, 2008. "Inflation Target Fulfillment in the Czech Republic in 1998–2007: Some Stylized Facts," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 58(09-10), pages 406-424, December.
  5. Aliyu, Shehu Usman Rano & Englama, Abwaku, 2009. "Is Nigeria Ready for Inflation Targeting?," MPRA Paper 14870, University Library of Munich, Germany, revised 26 Apr 2009.
  6. Martin Cihák & Katerina Smídková & Ales Bulir, 2008. "Writing Clearly," IMF Working Papers 08/252, International Monetary Fund.

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