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Coping with the Recent Financial Crisis, did Inflation Targeting Make Any Difference?

  • Armand Fouejieu Azangue

    ()

    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR7322 - Université d'Orléans)

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    The effects of the 2008/2009 financial crisis went largely among the financial markets and hit the real economy, generating one of the greatest global economic shocks. The aim of this study is to investigate whether inflation targeting has made a difference during this crisis. We first present some arguments suggesting that inflation targeters can be expected to do better when facing a global shock. Applying difference in difference in the spirit of Ball and Sheridan (2005), we assess the difference between targeters and non-targeters and find that there is no significant difference concerning inflation rate and GDP growth. However, the rise in interest rates and inflation volatility during the crisis has been significantly less pronounced for targeters.

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    Paper provided by HAL in its series Working Papers with number halshs-00826277.

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    Date of creation: 22 May 2012
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    Handle: RePEc:hal:wpaper:halshs-00826277
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    1. Guillermo Calvo, 2010. "Inflation targeting in hard times," BIS Papers chapters, in: Bank for International Settlements (ed.), Perspectives on inflation targeting, financial stability and the global crisis, volume 51, pages 15-18 Bank for International Settlements.
    2. Irineu E. Carvalho Filho, 2010. "Inflation Targeting and the Crisis; An Empirical Assessment," IMF Working Papers 10/45, International Monetary Fund.
    3. 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.
    4. Frappa, Sébastien & Mésonnier, Jean-Stéphane, 2010. "The housing price boom of the late 1990s: Did inflation targeting matter?," Journal of Financial Stability, Elsevier, vol. 6(4), pages 243-254, December.
    5. Lin, Shu & Ye, Haichun, 2009. "Does inflation targeting make a difference in developing countries?," Journal of Development Economics, Elsevier, vol. 89(1), pages 118-123, May.
    6. Michael Dooley, 2010. "Central bank responses to financial crises," BIS Papers chapters, in: Bank for International Settlements (ed.), Perspectives on inflation targeting, financial stability and the global crisis, volume 51, pages 31-34 Bank for International Settlements.
    7. René TAPSOBA, 2010. "Does Inflation Targeting Improve Fiscal Discipline? An Empirical Investigation," Working Papers 201020, CERDI.
    8. Lucotte, Yannick, 2012. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," Economic Systems, Elsevier, vol. 36(4), pages 609-628.
    9. Shu Lin, 2010. "On the International Effects of Inflation Targeting," The Review of Economics and Statistics, MIT Press, vol. 92(1), pages 195-199, February.
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