Does inflation targeting matter?
This paper studies the inflation and interest rate performances since the late 1970s for six former highinflation countries that adopted inflation targeting (IT) in the early 1990’s. Using Germany, Switzerland and the US for comparison, we look at various aspects of central bank performance in a pre-IT period (1978-92) and a post-IT period (1993-01). The results of all types of evidence considered uniformly lead to the general conclusion that IT has proven a useful strategy for reducing the level and volatility of inflation. However, IT central banks did not outperform the central banks used as reference cases during the second period. We then present an event study of monetary policy comparing inflation and interest rate developments after the 1978 and the 1998 oil price shocks. Here we find that IT central banks realized significantly larger gains in credibility than the central banks in the reference group. . This result corroborates the conclusion that IT is a useful framework for communicating a monetary policy strategy aiming at low inflation rates.
(This abstract was borrowed from another version of this item.)
Volume (Year): (2002)
Issue (Month): Jul ()
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References listed on IDEAS
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- Geraats, Petra M, 2000.
"Why Adopt Transparency? The Publication of Central Bank Forecasts,"
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- Geraats, P.M., 2001. "Why Adopt Transparency? The Publication of Central Bank Forecasts," Papers 41, Quebec a Montreal - Recherche en gestion.
- Geraats, Petra M., 2001. "Why adopt transparency? The publication of central bank forecasts," Working Paper Series 0041, European Central Bank.
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NBER Working Papers
6126, National Bureau of Economic Research, Inc.
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IMF Working Papers
- George A. Kahn & Klara Parrish, 1998. "Conducting monetary policy with inflation targets," Economic Review, Federal Reserve Bank of Kansas City, issue Q III, pages 5-32.
- John B. Taylor, 1999.
"A Historical Analysis of Monetary Policy Rules,"
in: Monetary Policy Rules, pages 319-348
National Bureau of Economic Research, Inc.
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