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The price stability under inflation targeting regime: An analysis with a new intermediate approach

Author

Listed:
  • Zied Ftiti

    (IPAG - Business School, University of Tunis - High Institute of Management)

  • Walid Hichri

    (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper analyzes the relevance of the inflation targeting (IT) policy in achieving its primary goal of medium-term price stability. Contrary to previous studies, we propose, in this work, a new approach; an intermediate approach that consists in conducting a time-series analysis (employed in the literature under unilateral cases-absolute approach) with a comparison of inflation performance of IT countries and those of non-IT countries (comparison made in literature under the relative approach). Empirically, we employ a frequency analysis based on evolutionary spectral theory of Priestley (1965–1996) in order to distinguish between different inflation horizons; short-run and the medium-run inflation rates. To check the stability of spectral density functions for inflation series for each country under studied frequencies, we apply a Bai and Perron (2003a,b) test. Our results show that after IT framework implementation, there is no break point in inflation series in short and medium terms. This result is not verified for non-IT countries. Therefore, IT is more relevant in achieving price stability and consequently more effective on inflation expectation anchoring than other monetary policies.
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Suggested Citation

  • Zied Ftiti & Walid Hichri, 2014. "The price stability under inflation targeting regime: An analysis with a new intermediate approach," Post-Print halshs-00958660, HAL.
  • Handle: RePEc:hal:journl:halshs-00958660
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00958660
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    3. repec:ipg:wpaper:2014-471 is not listed on IDEAS
    4. repec:ipg:wpaper:2014-562 is not listed on IDEAS
    5. repec:eee:ecmode:v:67:y:2017:i:c:p:215-227 is not listed on IDEAS
    6. Chaouech, Olfa, 2012. "La politique de ciblage d'inflation: fondements théoriques et validation empirique
      [The inflation targeting policy: theoretical and empirical validation]
      ," MPRA Paper 60760, University Library of Munich, Germany, revised 19 Dec 2014.
    7. repec:ipg:wpaper:2014-461 is not listed on IDEAS
    8. Alexandru MINEA & Jean-Louis COMBES & Weneyam Hippolyte BALIMA, 2015. "Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference?," Working Papers 201504, CERDI.
    9. repec:ipg:wpaper:2014-548 is not listed on IDEAS

    More about this item

    Keywords

    Inflation targeting; Inflation stability; Structural change; Evolutionary spectral analysis; Intermediate approach; Pre-requisite;

    JEL classification:

    • C40 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy

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