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Assessing Inflation Targeting after a Decade of World Experience

  • Corbo, Vittorio
  • Landerretche, Oscar
  • Schmidt-Hebbel, Klaus

Ten years of inflation targeting worldwide provide valuable lessons. Inflation targeters (ITers) have been very successful in meeting their inflation targets (ITs). Industrial output sacrifice during inflation stabilization and industrial output volatility has frequently been lowered after IT adoption. ITers have consistently reduced inflation forecast errors after IT adoption. The influence of price and output shocks on the behaviour of inflation and output gaps has changed much more strongly among ITers than in non-targeting industrial countries in the course of the 1990s. IT has played a role in strengthening the effect of forward-looking expectations on inflation, hence weakening the weight of past inflation inertia. Central bankers' aversion to inflation is, on average, not different among ITers in comparison to NITers but has risen in emerging-country ITers. ITers have gradually reaped a credibility gain, allowing them to achieve their targets with smaller changes in interest rates in the late 1990s than the changes that were required in the early 1990s. Copyright @ 2001 by John Wiley & Sons, Ltd. All rights reserved.

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Article provided by John Wiley & Sons, Ltd. in its journal International Journal of Finance & Economics.

Volume (Year): 6 (2001)
Issue (Month): 4 (October)
Pages: 343-68

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Handle: RePEc:ijf:ijfiec:v:6:y:2001:i:4:p:343-68
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  1. Frederic S. Mishkin, 2000. "International Experiences with Different Monetary Policy Regimes," NBER Working Papers 7044, National Bureau of Economic Research, Inc.
  2. Bernanke, Ben S. & Mihov, Ilian, 1997. "What does the Bundesbank target?," European Economic Review, Elsevier, vol. 41(6), pages 1025-1053, June.
  3. Frederic S. Mishkin, 2000. "Inflation Targeting in Emerging Market Countries," NBER Working Papers 7618, National Bureau of Economic Research, Inc.
  4. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  5. Marc Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting; Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
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