IDEAS home Printed from https://ideas.repec.org/a/eee/finlet/v20y2017icp296-302.html
   My bibliography  Save this article

Inflation targeting and the cyclicality of monetary policy

Author

Listed:
  • Thornton, John
  • Vasilakis, Chrysovalantis

Abstract

We assess whether the adoption of inflation targeting (IT) frameworks has facilitated countercyclical monetary policies in a sample of 90 industrial and developing economies, 22 of which have adopted IT. Using propensity score matching methods, we show that the average treatment effect of IT has a statistically significant and quantitatively quite large effect in facilitating a more countercyclical monetary policy in IT adopting countries.

Suggested Citation

  • Thornton, John & Vasilakis, Chrysovalantis, 2017. "Inflation targeting and the cyclicality of monetary policy," Finance Research Letters, Elsevier, vol. 20(C), pages 296-302.
  • Handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:296-302
    DOI: 10.1016/j.frl.2016.10.012
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1544612316302616
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Anna Samarina & Jakob De Haan, 2014. "Right On Target: Exploring The Factors Leading To Inflation Targeting Adoption," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 372-389, April.
    2. Chinn, Menzie D. & Ito, Hiro, 2006. "What matters for financial development? Capital controls, institutions, and interactions," Journal of Development Economics, Elsevier, vol. 81(1), pages 163-192, October.
    3. Alberto Alesina & Filipe R. Campante & Guido Tabellini, 2008. "Why is Fiscal Policy Often Procyclical?," Journal of the European Economic Association, MIT Press, vol. 6(5), pages 1006-1036, September.
    4. Francisco Palomino, 2012. "Bond Risk Premiums and Optimal Monetary Policy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(1), pages 19-40, January.
    5. Jeffrey A. Frankel, 2010. "Monetary Policy in Emerging Markets: A Survey," NBER Working Papers 16125, National Bureau of Economic Research, Inc.
    6. Samir Jahjah & Bin Wei & Vivian Zhanwei Yue, 2013. "Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1275-1300, October.
    7. Gill Hammond, 2012. "State of the art of inflation targeting," Handbooks, Centre for Central Banking Studies, Bank of England, edition 4, number 29, March.
    8. repec:hrv:faseco:34729976 is not listed on IDEAS
    9. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    10. Kiley, Michael T., 2016. "Monetary policy statements, treasury yields, and private yields: Before and after the zero lower bound," Finance Research Letters, Elsevier, vol. 18(C), pages 285-290.
    11. Reuven Glick & Xueyan Guo & Michael Hutchison, 2006. "Currency Crises, Capital-Account Liberalization, and Selection Bias," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 698-714, November.
    12. Minford, Patrick & Peel, David, 1982. "The political theory of the business cycle," European Economic Review, Elsevier, vol. 17(2), pages 253-270.
    13. Aksoy, Yunus & Orphanides, Athanasios & Small, David & Wieland, Volker & Wilcox, David, 2006. "A quantitative exploration of the opportunistic approach to disinflation," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1877-1893, November.
    14. Minea, Alexandru & Tapsoba, René, 2014. "Does inflation targeting improve fiscal discipline?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 185-203.
    15. Lin, Shu & Ye, Haichun, 2007. "Does inflation targeting really make a difference? Evaluating the treatment effect of inflation targeting in seven industrial countries," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2521-2533, November.
    16. Henry W. Chappell & Thomas M. Havrilesky & Rob Roy McGregor, 1993. "Partisan Monetary Policies: Presidential Influence Through the Power of Appointment," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 185-218.
    17. Orphanides, Athanasios & Wilcox, David W, 2002. "The Opportunistic Approach to Disinflation," International Finance, Wiley Blackwell, vol. 5(1), pages 47-71, Spring.
    18. Thornton, John, 2016. "Inflation targeting in developing countries revisited," Finance Research Letters, Elsevier, vol. 16(C), pages 145-153.
    19. Sensoy, Ahmet, 2016. "Commonality in liquidity: Effects of monetary policy and macroeconomic announcements," Finance Research Letters, Elsevier, vol. 16(C), pages 125-131.
    20. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
    21. Tarun Chordia, 2005. "An Empirical Analysis of Stock and Bond Market Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 18(1), pages 85-129.
    22. Lin, Shu & Ye, Haichun, 2009. "Does inflation targeting make a difference in developing countries?," Journal of Development Economics, Elsevier, vol. 89(1), pages 118-123, May.
    23. repec:hrv:faseco:34721963 is not listed on IDEAS
    24. Thornton, John & Vasilakis, Chrysovalantis, 2016. "Does inflation targeting reduce sovereign risk? Further evidence," Finance Research Letters, Elsevier, vol. 18(C), pages 237-241.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:ecofin:v:44:y:2018:i:c:p:44-61 is not listed on IDEAS
    2. repec:eco:journ1:2017-04-53 is not listed on IDEAS
    3. repec:eee:finlet:v:24:y:2018:i:c:p:263-272 is not listed on IDEAS

    More about this item

    Keywords

    Inflation targeting; Monetary policy cyclicality; Treatment effect; Propensity score matching;

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:finlet:v:20:y:2017:i:c:p:296-302. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/frl .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.