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The effects of inflation targeting on Okun’s law

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  • Ho-Chuan Huang
  • Chih-Chuan Yeh
  • Kuang-Ping Ku
  • Shu-Chuan Lin

Abstract

This article provides the first empirical evidence that the adoption of inflation targeting (IT) matters for the extent of tradeoff between unemployment and output, that is Okun’s law. Our full sample results indicate that IT leads to a more negative Okun’s coefficient, suggesting that, for a given reduction of output, the introduction of IT is associated with a higher unemployment rate. Subsample analyses reveal that the whole sample results are mainly driven by the industrial subsample outcomes, not the developing counterparts. Our findings point out that IT not only influences macroeconomic variables per se but also affects the relationship between/among macroeconomic variables.

Suggested Citation

  • Ho-Chuan Huang & Chih-Chuan Yeh & Kuang-Ping Ku & Shu-Chuan Lin, 2016. "The effects of inflation targeting on Okun’s law," Applied Economics Letters, Taylor & Francis Journals, vol. 23(12), pages 868-874, August.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:12:p:868-874
    DOI: 10.1080/13504851.2015.1117037
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