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Does Inflation Targeting Matter?

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  • Laurence Ball
  • Niamh Sheridan

Abstract

This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare seven OECD countries that adopted inflation targeting in the early 1990s to thirteen that did not. After the early 90s, performance improved along many dimensions for both the targeting countries and the non-targeters. In some cases the targeters improved by more; for example, average inflation fell by a larger amount. However, these differences are explained by the facts that targeters performed worse than non-targeters before the early 90s, and there is regression to the mean. Once one controls for regression to the mean, there is no evidence that inflation targeting improves performance.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9577.

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Date of creation: Mar 2003
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Publication status: published as Bernanke, Ben S. and Michael Woodford (eds.) The Inflation-Targeting Debate (National Bureau of Economic Research Studies in Income and Wealth). University Of Chicago Press, November 1, 2006.
Handle: RePEc:nbr:nberwo:9577

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  1. Stephen Cecchetti & Michael Ehrmann, 2000. "Does Inflation Targeting Increase Output volatility? An International Comparison of Policy Maker's Preferences and Outcomes," Working Papers Central Bank of Chile 69, Central Bank of Chile.
  2. Lars E.O. Svensson, 1995. "The Swedish Experience of an Inflation Target," NBER Working Papers 4985, National Bureau of Economic Research, Inc.
  3. Neumann, Manfred J. M. & von Hagen, Jürgen, 2002. "Does inflation targeting matter?," ZEI Working Papers B 01-2002, ZEI - Center for European Integration Studies, University of Bonn.
  4. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  5. Kenneth N. Kuttner & Adam S. Posen, 1999. "Does Talk Matter After All? Inflation Targeting and Central Bank Behavior," Working Paper Series WP99-10, Peterson Institute for International Economics.
  6. Svensson, L-E-O, 1996. "Inflation Forecast Targeting : Implementaing and Monitoring Inflation Targets," Papers 615, Stockholm - International Economic Studies.
  7. Vittorio Corbo & Óscar Landerretche & Klaus Schmidt-Hebbel, 2002. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, 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.
  8. Laurence Ball, 1997. "Efficient rules for monetary policy," Reserve Bank of New Zealand Discussion Paper Series G97/3, Reserve Bank of New Zealand.
  9. Laurence Ball, 1996. "Disinflation and the NAIRU," NBER Working Papers 5520, National Bureau of Economic Research, Inc.
  10. Frederic S. Mishkin, 2000. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 7044, National Bureau of Economic Research, Inc.
  11. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, September.
  12. Frederic S. Mishkin, 2002. "Does inflation targeting matter? - commentary," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 149-154.
  13. Marc Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting," IMF Occasional Papers 202, International Monetary Fund.
  14. repec:nbr:nberwo:12876 is not listed on IDEAS
  15. Johnson, David R., 2002. "The effect of inflation targeting on the behavior of expected inflation: evidence from an 11 country panel," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1521-1538, November.
  16. Chorng-Huey Wong & Eric V. Clifton & H. L. Leon, 2001. "Inflation Targeting and the Unemployment-Inflation Trade-Off," IMF Working Papers 01/166, International Monetary Fund.
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