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Does Inflation Targeting Affect the Dispersion of Inflation Expectations?

  • Carlos Capistrán
  • Manuel Ramos Francia

In this paper we examine the effect of having an inflation targeting framework on the dispersion of inflation forecasts from professional forecasters. We use a panel data set of 26 countries -including 14 inflation targeters- with monthly information from the last 16 years. We find that the dispersion of long-run inflation expectations is lower in targeting regimes after controlling for country-specific effects, time-specific effects, initial dispersion, the level and the variance of inflation, disinflation periods, and global inflation. When we differentiate between developed and developing countries, we find different dynamics for each group. In particular, the mentioned effect of inflation targeting seems to be present only on the developing countries.

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File URL: http://www.banxico.org.mx/publicaciones-y-discursos/publicaciones/documentos-de-investigacion/banxico/%7B9973AC57-1ED5-0E35-408C-63705AFAF276%7D.pdf
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Paper provided by Banco de México in its series Working Papers with number 2007-11.

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Date of creation: Aug 2007
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Handle: RePEc:bdm:wpaper:2007-11
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