Expectations Anchoring in Inflation Targeting Regimes
AbstractCentral banks adopt an inflation targeting policy with a goal to anchor inflation expectations. We argue that the expectations anchoring test developed in the context of the Krugman (1991) exchange rate targeting model is well-suited for inflation targeting applications. The test quantifies nonlinearity between realized and expected inflation for very high and very low inflation levels. It does not require comparison with the control group of non-targeting countries, avoiding critique of the benchmark approach. We test inflation targeting in Australia, Canada, New Zealand, Sweden, the United Kingdom and find weak support for expectations anchoring.
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Bibliographic InfoPaper provided by VCU School of Business, Department of Economics in its series Working Papers with number 0503.
Length: 20 pages
Date of creation: Sep 2005
Date of revision:
monetary policy; inflation; exchange rate; target zone model; expectations anchoring;
Find related papers by JEL classification:
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-26 (All new papers)
- NEP-CBA-2006-02-26 (Central Banking)
- NEP-MAC-2006-02-26 (Macroeconomics)
- NEP-MON-2006-02-26 (Monetary Economics)
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