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Has Inflation Targeting Changed Monetary Policy Preferences?

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The literature on inflation targeting has up to now focused on its impact on macroeconomic performance or private expectations. In contrast, this paper proposes to investigate empirically whether the institutional adoption of this framework has changed the policy preferences of the central banker. We test the hypothesis that inflation targeting has constituted a switch towards a greater focus on inflation. We use three complementary methods: a structural break analysis, time-varying parameters and Markov-Switching VAR which make possible to estimate linear or nonlinear, and forward or backward looking specifications, to account for heteroskedasticity without having to assume a date break ex ante. Our main result is that inflation targeting has not led to a stronger response to inflation. We infer that the inflation targeting paradigm should not be confounded with the inflation targeting framework.

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  • Jerome Creel & Paul Hubert, 2010. "Has Inflation Targeting Changed Monetary Policy Preferences?," Documents de Travail de l'OFCE 2010-14, Observatoire Francais des Conjonctures Economiques (OFCE).
  • Handle: RePEc:fce:doctra:1014
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    Cited by:

    1. Barrdear, John, 2015. "Towards a New Keynesian theory of the price level," Bank of England working papers 532, Bank of England.
    2. Eric Girardin & Sandrine Lunven & Guonan Ma, 2014. "Inflation and China's monetary policy reaction function: 2002-2013," BIS Papers chapters,in: Bank for International Settlements (ed.), Globalisation, inflation and monetary policy in Asia and the Pacific, volume 77, pages 159-170 Bank for International Settlements.
    3. Marjan Petreski, 2010. "An Overhaul of a Doctrine: Has Inflation Targeting Opened a New Era in Developing-country Peggers?," FIW Working Paper series 057, FIW.
    4. Ardakani, Omid & Kishor, Kundan & Song, Suyong, 2015. "On the Effectiveness of Inflation Targeting: Evidence from a Semiparametric Approach," MPRA Paper 75091, University Library of Munich, Germany.
    5. Ardakani, Omid & Kishor, N. Kundan, 2014. "Examining the Success of the Central Banks in Inflation Targeting Countries: The Dynamics of Inflation Gap and the Institutional Characteristics," MPRA Paper 58402, University Library of Munich, Germany.
    6. repec:eee:dyncon:v:90:y:2018:i:c:p:76-97 is not listed on IDEAS
    7. Andrew HUGHES HALLETT & Jan LIBICH & Petr STEHLÍK, 2014. "Monetary and Fiscal Policy Interaction with Various Degrees of Commitment," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 64(1), pages 2-29, February.
    8. Moccero, Diego & Gnabo, Jean-Yves, 2015. "The risk management approach to monetary policy, nonlinearity and aggressiveness: the case of the US Fed," Working Paper Series 1792, European Central Bank.
    9. repec:bla:ecorec:v:93:y:2017:i:300:p:67-88 is not listed on IDEAS
    10. Jacek Suda & Anastasia Zervou, 2016. "International Great Inflation and Common Monetary Policy," Working Papers 20160513_001, Texas A&M University, Department of Economics.
    11. Gnabo, Jean-Yves & Moccero, Diego Nicolas, 2015. "Risk management, nonlinearity and aggressiveness in monetary policy: The case of the US Fed," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 281-294.
    12. repec:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0522-8 is not listed on IDEAS
    13. Marjan Petreski, 2011. "A Markov Switch to Inflation Targeting in Emerging Market Peggers with a Focus on the Czech Republic, Poland and Hungary," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 57-75.

    More about this item

    Keywords

    Monetary Policy; Inflation Targeting; Taylor Rule; Structural Break; Time-Varying coefficients; Markov-Switching VAR;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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