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Inflation Targeting and the Crisis: An Empirical Assessment

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  • de Carvalho Filho, Irineu

Abstract

This paper appraises how countries with inflation targeting fared during the current crisis, with the goal of establishing the stylized facts that will guide and motivate future research. We find that relative to other countries, IT countries lowered nominal policy rates by more and this loosening translated into an even larger differential in real interest rates; were less likely to face deflation scares; and saw sharp real depreciations not associated with a greater perception of risk by markets. We also find some weak evidence that IT countries did better on unemployment rates and advanced IT countries have had relatively stronger industrial production performance. Finally, we find that advanced IT countries had higher GDP growth rates than their non-IT peers, but no such difference for emerging countries or the full sample.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19960.

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Date of creation: 11 Jan 2010
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Handle: RePEc:pra:mprapa:19960

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Keywords: Inflation targeting; economic crisis; monetary policy;

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References

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  1. Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
  2. Brito, Ricardo D. & Bystedt, Brianne, 2010. "Inflation targeting in emerging economies: Panel evidence," Journal of Development Economics, Elsevier, vol. 91(2), pages 198-210, March.
  3. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Monetary Policy under Inflation Targeting: An Introduction," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 1, pages 001-022 Central Bank of Chile.
  4. Olivier Blanchard & Jordi Galí, 2005. "Real wage rigidities and the new Keynesian model," Economics Working Papers 912, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2005.
  5. Mendoza, Enrique G, 1995. "The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(1), pages 101-37, February.
  6. Olivier J. Blanchard, 2009. "The Crisis," IMF Working Papers 09/80, International Monetary Fund.
  7. Scott Roger, 2009. "Inflation Targeting At 20," IMF Working Papers 09/236, International Monetary Fund.
  8. Inci Ötker & David Vávra & Francisco F. Vázquez & Luis Ignacio Jácome & Karl Friedrich Habermeier & Kotaro Ishi & Alessandro Giustiniani & Turgut Kisinbay, 2009. "Inflation Pressures and Monetary Policy Options in Emerging and Developing Countries-A Cross Regional Perspective," IMF Working Papers 09/1, International Monetary Fund.
  9. Christopher W. Crowe & Jonathan David Ostry & Jun Il Kim & Marcos Chamon & Atish R. Ghosh, 2009. "Coping with the Crisis," IMF Staff Position Notes 2009/08, International Monetary Fund.
  10. Olivier Blanchard, 2009. "The Crisis: Basic Mechanisms and Appropriate Policies," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 10(1), pages 3-14, 04.
  11. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 312-318, February.
  12. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
  13. Charles Freedman & Douglas Laxton, 2009. "Why Inflation Targeting?," IMF Working Papers 09/86, International Monetary Fund.
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Cited by:
  1. Kenji Moriyama, 2011. "Inflation Inertia in Egypt and its Policy Implications," IMF Working Papers 11/160, International Monetary Fund.
  2. Thorvardur Tjörvi Ólafsson & Thórarinn G. Pétursson, 2010. "Weathering the financial storm: The importance of fundamentals and flexibility," Economics Working Papers 2010-17, School of Economics and Management, University of Aarhus.
  3. Felipe Jaque S. & Alfredo Pistelli M, 2011. "Impacto de la Crisis Financiera Global del 2008-09: ¿Qué Explica las Diferencias de Crecimiento entre Países?," Notas de Investigación Journal Economía Chilena (The Chilean Economy), Central Bank of Chile, vol. 14(1), pages 69-78, April.

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