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Has Inflation Targeting Improved Monetary Policy? Evaluating Policy Effectiveness in Australia, Canada, and New Zealand

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  • Pierre L. Siklos

    ()
    (Department of Economics, Wilfrid Laurier University and Viessman Research Centre)

  • Diana N. Weymark

    ()
    (Department of Economics, Vanderbilt University)

Abstract

The degree to which explicit inflation targets contribute to the success of price stabilization policies has not been conclusively established. To assess the impact of announced inflation targets on the effectiveness of monetary policy, we construct indicators of inflation pressure that allow us to characterize the impact and effectiveness of monetary policy quantitatively. We examine the records of three inflation targeting economies, Australia, Canada, and New Zealand, and compare them to the US. We find that the inflation targeting countries have substantially lower inflation pressure and that inflation targeting reduces the size of interest rate changes needed to moderate inflation.

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Bibliographic Info

Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0906.

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Date of creation: Apr 2009
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Handle: RePEc:van:wpaper:0906

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Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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Keywords: Inflation targeting; monetary policy; inflation pressure; stabilization policy;

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References

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  22. repec:nbr:nberwo:12876 is not listed on IDEAS
  23. Diana N. Weymark & Mototsugu Shintani, 2004. "Measuring Inflation Pressure and Monetary Policy Response: A General Approach Applied to US Data 1966 - 2001," Vanderbilt University Department of Economics Working Papers 0424, Vanderbilt University Department of Economics.
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Cited by:
  1. Jaromir Baxa & Roman Horvath & Borek Vasicek, 2010. "How Does Monetary Policy Change? Evidence on Inflation Targeting Countries," Working Papers 2010/02, Czech National Bank, Research Department.

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