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Does Inflation Targeting Matter?

In: The Inflation-Targeting Debate

  • Laurence M. Ball
  • Niamh Sheridan

This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare seven OECD countries that adopted inflation targeting in the early 1990s to thirteen that did not. After the early 90s, performance improved along many dimensions for both the targeting countries and the non-targeters. In some cases the targeters improved by more; for example, average inflation fell by a larger amount. However, these differences are explained by the facts that targeters performed worse than non-targeters before the early 90s, and there is regression to the mean. Once one controls for regression to the mean, there is no evidence that inflation targeting improves performance.

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This chapter was published in:
  • Ben S. Bernanke & Michael Woodford, 2004. "The Inflation-Targeting Debate," NBER Books, National Bureau of Economic Research, Inc, number bern04-1, June.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 9561.
    Handle: RePEc:nbr:nberch:9561
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    1. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
    2. Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," NBER Working Papers 12876, National Bureau of Economic Research, Inc.
    3. Mishkin, F.S., 1998. "International Experiences with Different Monetary Policy Regimes," Papers 648, Stockholm - International Economic Studies.
    4. Johnson, David R., 2002. "The effect of inflation targeting on the behavior of expected inflation: evidence from an 11 country panel," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1521-1538, November.
    5. Kenneth N. Kuttner & Adam S. Posen, 1999. "Does Talk Matter After All? Inflation Targeting and Central Bank Behavior," Working Paper Series WP99-10, Peterson Institute for International Economics.
    6. Stephen G. Cecchetti & Michael Ehrmann, 2002. "Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274 Central Bank of Chile.
    7. Svensson, Lars E O, 1995. "The Swedish Experience of an Inflation Target," CEPR Discussion Papers 1103, C.E.P.R. Discussion Papers.
    8. Svensson, Lars E.O., 1997. "Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets," Seminar Papers 615, Stockholm University, Institute for International Economic Studies.
    9. Neumann, Manfred J. M. & von Hagen, Jürgen, 2002. "Does inflation targeting matter?," ZEI Working Papers B 01-2002, University of Bonn, ZEI - Center for European Integration Studies.
    10. Laurence Ball, 1996. "Disinflation and the NAIRU," NBER Working Papers 5520, National Bureau of Economic Research, Inc.
    11. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345, December.
    12. Ball, Laurence, 1999. "Efficient Rules for Monetary Policy," International Finance, Wiley Blackwell, vol. 2(1), pages 63-83, April.
    13. Chorng-Huey Wong & Eric V. Clifton & Gene L. Leon, 2001. "Inflation Targeting and the Unemployment-Inflation Trade-off," IMF Working Papers 01/166, International Monetary Fund.
    14. Mark Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting; Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
    15. Frederic S. Mishkin, 2002. "Does inflation targeting matter? - commentary," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 149-154.
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