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Reduced macroeconomic volatility after adoption of inflation targeting: Impulses or propagation?

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  • Cruz, Christopher John

Abstract

This paper asks whether the notable decline in macroeconomic volatility after countries adopted inflation targeting can be attributed to a more stable structure (the propagation mechanism) or less volatile shocks (the impulses). Using quarterly data from a sample of advanced and emerging market economies, results show that the observed reduction in inflation variability may be attributed largely to a more stable structure while the decreased output volatility is driven solely by much calmer shocks. The result is robust to various specifications examined.

Suggested Citation

  • Cruz, Christopher John, 2022. "Reduced macroeconomic volatility after adoption of inflation targeting: Impulses or propagation?," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 759-770.
    • Handle: RePEc:eee:reveco:v:82:y:2022:i:c:p:759-770
    DOI: 10.1016/j.iref.2022.06.005
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    More about this item

    Keywords

    Inflation targeting; Inflation volatility; Output volatility; Macroeconomic stability;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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