Vittorio Corbo () (Catholic University of Chile) Oscar Landerretche () (Massachusetts Institute of Technology) Klaus Schmidt-Hebbel () (Central Bank of Chile)
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Ten years of inflation targeting worldwide provide valuable lessons. Inflation targeters (ITers) have been very successful in meeting their inflation targets (ITs). Industrial output sacrifice during inflation stabilization and industrial output volatility has frequently been lowered after IT adoption. ITers have consistently reduced inflation forecast errors after IT adoption. The influence of price and output shocks on the behavior of inflation and output gaps has changed much more strongly among ITers than in non-targeting industrial countries in the course of the 1990s. IT has played a role in strengthening the effect of forward-looking expectations on inflation, hence weakening the weight of past inflation inertia. Central bankersÂ’ aversion to inflation is on average not different among ITers in comparison to NITers but has risen in emerging-country ITers. ITers have gradually reaped a credibility gain, allowing them to achieve their targets with smaller changes in interest rates in the late 1990s than the changes that were required in the early 1990s.
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Paper provided by Oesterreichische Nationalbank (Austrian Central Bank) in its series Working Papers with number
51.
Find related papers by JEL classification: E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
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