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Keep your Word: Time-varying Inflation Targets and Inflation Targeting Performance

Listed author(s):
  • Bedri Kamil Onur Tas
  • Ishak Demir

type="main"> This paper investigates the implicit inflation targets of inflation targeting (IT) central banks (CBs). The implicit (perceived) inflation targets of IT CBs derived from their actions (policy interest rates) are calculated before and after IT adoption. We conclude that after adoption of IT implicit targets become significantly lower. Other factors that cause CBs to change their implicit targets are inflation, exchange rate and trade balance. Finally, we find that CBs that do not follow their announced targets miss their inflation targets. The results indicate that IT CBs should follow their announced targets when setting policy interest rates.

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File URL: http://hdl.handle.net/10.1111/manc.12005
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Article provided by University of Manchester in its journal The Manchester School.

Volume (Year): 82 (2014)
Issue (Month): 2 (March)
Pages: 160-182

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Handle: RePEc:bla:manchs:v:82:y:2014:i:2:p:160-182
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