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A New Test for the Success of Inflation Targeting

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  • Verónica Cohen Sabbán
  • Martín Gonzalez Rozada
  • Andrew Powell

Abstract

We propose a new test, derived from a set of variance decompositions of a structural VAR, for the success of inflation targeting. In contrast to standard sacrifice ratios this test considers changes in the structure of real and nominal shocks; second moment effects. We find strong support for IT with 7 of the 9 countries in our sample having negative “sacrifices” and many countries with “benefits”. However, we also find very different performances across IT countries. We find that “IT success” depends on the size of the real shocks suffered but controlling for this there are differences in country performance.

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File URL: http://www.utdt.edu/departamentos/empresarial/cif/pdfs-wp/wpcif-032004.pdf
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Bibliographic Info

Paper provided by Universidad Torcuato Di Tella in its series Business School Working Papers with number inflationtargeting.

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Length: 36 pages
Date of creation: 2003
Date of revision:
Handle: RePEc:udt:wpbsdt:inflationtargeting

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  1. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging Market Countries," NBER Working Papers 7618, National Bureau of Economic Research, Inc.
  2. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  3. Svensson, Lars E. O., 1999. "Inflation targeting as a monetary policy rule," Journal of Monetary Economics, Elsevier, vol. 43(3), pages 607-654, June.
  4. Guy Debelle, 1998. "Inflation Targeting in Practice," Occasional Papers, South East Asian Central Banks (SEACEN) Research and Training Centre, number occ23, June.
  5. Corbo, Vittorio & Landerretche, Oscar & Schmidt-Hebbel, Klaus, 2001. "Assessing Inflation Targeting after a Decade of World Experience," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 6(4), pages 343-68, October.
  6. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  7. R. Dornbusch, 1975. "Exchange Rate Dynamics," Working papers 167, Massachusetts Institute of Technology (MIT), Department of Economics.
  8. Enders, Walter & Lee, Bong-Soo, 1997. "Accounting for real and nominal exchange rate movements in the post-Bretton Woods period," Journal of International Money and Finance, Elsevier, vol. 16(2), pages 233-254, April.
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Cited by:
  1. repec:nbr:nberwo:12876 is not listed on IDEAS
  2. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," 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 9, pages 291-372 Central Bank of Chile.
  3. Ferro, Gustavo, 2007. "Metas de inflación ¿qué hay de nuevo bajo el sol?
    [Inflation Targeting. What's new under the sun?]
    ," MPRA Paper 15069, University Library of Munich, Germany, revised 11 Mar 2008.
  4. Luca Gambetti & Evi Pappa, 2009. "Does inflation targeting matter for output and inflation volatility?," Working Papers 410, Barcelona Graduate School of Economics.
  5. Thorarinn G. Petursson, 2005. "Inflation Targeting and its Effects on Macroeconomic Performance," Chapters in SUERF Studies, SUERF - The European Money and Finance Forum.
  6. de Mendonça, Helder Ferreira & de Guimarães e Souza, Gustavo José, 2012. "Is inflation targeting a good remedy to control inflation?," Journal of Development Economics, Elsevier, vol. 98(2), pages 178-191.

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