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Assessing Inflation Targeting after a Decade of World Experience

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Author Info
Vittorio Corbo () (Catholic University of Chile)
Oscar Landerretche () (Massachusetts Institute of Technology)
Klaus Schmidt-Hebbel () (Central Bank of Chile)

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Abstract

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.

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Length: 67 pages
Date of creation: 08 Sep 2001
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Handle: RePEc:onb:oenbwp:51

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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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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging-Market Countries," American Economic Review, American Economic Association, vol. 90(2), pages 105-109, May. [Downloadable!] (restricted)
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  2. Andrea Schaechter & Marc Zelmer, 2000. "Adopting Inflation Targeting: Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
  3. Ben S. Bernanke & Ilian Mihov, 1996. "What Does the Bundesbank Target?," NBER Working Papers 5764, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Silvia Sgherri & Tamim Bayoumi, 2004. "Deconstructing the Art of Central Banking," IMF Working Papers 04/195, International Monetary Fund. [Downloadable!]
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  2. Reza Siregar & Siwei Goo, 2008. "Inflation Targeting Policy: The Experiences Of Indonesia And Thailand," CAMA Working Papers 2008-23, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
  3. Taner Yigit, 2007. "Inflation Targeting : An Indirect Approach to Assess the Direct Impact," Departmental Working Papers 0706, Bilkent University, Department of Economics. [Downloadable!]
  4. A. R. Pagan & Luis Catão & Douglas Laxton, 2008. "Monetary Transmission in an Emerging Targeter: The Case of Brazil," IMF Working Papers 08/191, International Monetary Fund. [Downloadable!]
  5. Yifan Hu, 2003. "Empirical Investigations of Inflation Targeting," Peterson Institute Working Paper Series WP03-6, Peterson Institute for International Economics. [Downloadable!]
  6. Federico Ravenna, 2005. "The European Monetary Union as a Commitment Device for New EU Member States," Working Papers 98, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
  7. Scott Roger & Mark R. Stone, 2005. "On Target? The International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund. [Downloadable!]
  8. Christopher W. Crowe, 2007. "Testing the Transparency Benefits of Inflation Targeting: Evidence from Private Sector Forecasts," IMF Working Papers 06/289, International Monetary Fund. [Downloadable!]
  9. Thomas Y. Wu, 2004. "Does Inflation Targeting Reduce Inflation? An Analysis for the OECD Industrial Countries," Working Papers Series 83, Central Bank of Brazil, Research Department. [Downloadable!]
  10. Andrew Powell & Martin Gonzalez Rozada & Verónica Cohen Sabbán, 2003. "A new test for the success of inflation targeting," Business School Working Papers trece, Universidad Torcuato Di Tella. [Downloadable!]
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  11. Gianni Amisano & Marco Tronzano, 2005. "Assessing ECB?s Credibility During the First Years of the Eurosystem: A Bayesian Empirical Investigation," Working Papers ubs0512, University of Brescia, Department of Economics. [Downloadable!]
  12. Nicholas Apergis & Stephen M. Miller & Alexandros Panethimitakis & Athanasios Vamvakidis, 2005. "Inflation Targeting and Output Growth: Empirical Evidence for the European Union," IMF Working Papers 05/89, International Monetary Fund. [Downloadable!]
  13. Andrew Berg & Eduardo Borensztein, & Paolo Mauro, 2002. "An Evaluation of Monetary Regime Options for Latin America," Working Papers 67, Oesterreichische Nationalbank (Austrian Central Bank). [Downloadable!]
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  14. Martin Cerisola & R. Gaston Gelos, 2005. "What Drives Inflation Expectations in Brazil? An Empirical Analysis," IMF Working Papers 05/109, International Monetary Fund. [Downloadable!]
  15. Kenneth Rogoff & Ashoka Mody & Nienke Oomes & Robin Brooks & Aasim M. Husain, 2003. "Evolution and Performance of Exchange Rate Regimes," IMF Working Papers 03/243, International Monetary Fund. [Downloadable!]
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  16. Philip Arestis, Malcolm Sawyer, 2003. "Inflation Targeting: A Critical Appraisal," Economics Working Paper Archive 388, Levy Economics Institute, The. [Downloadable!]
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  17. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "Explicit inflation objectives and macroeconomic outcomes," Working Paper Series 383, European Central Bank. [Downloadable!]
  18. Ilker Domac & Mohsen Bahmani-Oskooee, 2002. "On the Link between Dollarization and Inflation : Evidence from Turkey," Discussion Papers 0207, Research and Monetary Policy Department, Central Bank of the Republic of Turkey. [Downloadable!]
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  19. Nicholas Apergis & Stephen M. Miller & Alexandros Panethimitakis & Athanassios Vamvakidis, 2005. "Inflation Targeting and Output Growth: Evidence from Aggregate European Data," Working papers 2005-06, University of Connecticut, Department of Economics. [Downloadable!]
  20. Jan Libich, 2006. "An Explicit Inflation Target As A Commitment Device," CAMA Working Papers 2006-22, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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