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Inflation Targeting and Inflation Behavior: A Successful Story?

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Author Info

  • Marco Vega

    (Central Bank of Peru & London School of Economics)

  • Diego Winkelried

    (Cambridge University)

Abstract

This paper estimates the effects of inflation targeting (IT) adoption over inflation dynamics using a wide control group. We contribute to the current IT evaluation literature by considering the adoption of IT by a country as a treatment, just as in the program evaluation literature. Hence, we perform propensity score matching to determine suitable counterfactuals to the actual inflation targeters. With this approach we find that IT has helped in reducing the level and volatility of inflation in the countries that adopted it. This result is robust to alternative definitions of treatment and control groups. We also find that the e ect of IT in the persistence of inflation is rather weak and not as categorical as the one associated with the mean and volatility of inflation.

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File URL: http://128.118.178.162/eps/mac/papers/0502/0502026.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0502026.

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Length: 18 pages
Date of creation: 16 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpma:0502026

Note: Type of Document - pdf; pages: 18
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Web page: http://128.118.178.162

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Keywords: Inflation Targeting; matching methods;

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References

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  1. Carlos Robalo Marques, 2004. "Inflation Persistence: Facts or Artefacts?," Working Papers w200408, Banco de Portugal, Economics and Research Department.
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  9. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
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  12. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
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  19. repec:rus:hseeco:181565 is not listed on IDEAS
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  21. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
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