Does Inflation Targeting Matter ? An Experimental Investigation
We use laboratory experiments with human subjects to test the relevance of di-fferent inflation targeting regimes. In particular and within the standard New Keynesian model, we evaluate to what extent communication of the inflation target is relevant to the success of inflation targeting. We -find that if the central bank only cares about inflation stabilization, announcing the inflation target does not make a difference in terms of macroeconomic performances compared to a standard active monetary policy. However, if the central bank also cares about the stabilization of the economic activity, communicating the target helps to reduce the volatility of inflation, interest rate, and output gap although their average levels are not aff-ected. This finding is consistent with those of the theoretical literature and provides a rationale for the adoption of a flexible inflation targeting regime.
|Date of creation:||28 Oct 2013|
|Date of revision:|
|Note:||View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00877409|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kaushik Mitra & James Bullard, .
"Learning About Monetary Policy Rules,"
00/41, Department of Economics, University of York.
- Brito, Ricardo D. & Bystedt, Brianne, 2010.
"Inflation targeting in emerging economies: Panel evidence,"
Journal of Development Economics,
Elsevier, vol. 91(2), pages 198-210, March.
- Bystedt, Brianne & Brito, Ricardo D., 2008. "Inflation targeting in emerging economies: Panel evidence," Insper Working Papers wpe_125, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.
- Alvaro Angeriz & Philip Arestis, 2007.
"Assessing Inflation Targeting Through Intervention Analysis,"
Money Macro and Finance (MMF) Research Group Conference 2006
87, Money Macro and Finance Research Group.
- Alvaro Angeriz & Philip Arestis, 2008. "Assessing inflation targeting through intervention analysis," Oxford Economic Papers, Oxford University Press, vol. 60(2), pages 293-317, April.
- Tiziana Assenza & Peter Heemeijer & Cars Hommes & Domenico Massaro, 2013.
"Individual Expectations and Aggregate Macro Behavior,"
Tinbergen Institute Discussion Papers
13-016/II, Tinbergen Institute.
- Assenza, T. & Heemeijer, P. & Hommes, C.H. & Massaro, D., 2011. "Individual Expectations and Aggregate Macro Behavior," CeNDEF Working Papers 11-01, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Tiziana Assenza & Peter Heemeijer & Cars Hommes & Domenica Massaro, 2011. "Individual Expectations and Aggregate Macro Behavior," DNB Working Papers 298, Netherlands Central Bank, Research Department.
- Demertzis, Maria & Hughes Hallett, Andrew, 2002.
"Central Bank Transparency in Theory and Practice,"
CEPR Discussion Papers
3639, C.E.P.R. Discussion Papers.
- Maria Demertzis & Andrew Hughes Hallett, 2004. "Central bank transparency in theory and practice," Money Macro and Finance (MMF) Research Group Conference 2003 23, Money Macro and Finance Research Group.
- Demertzis, Maria & Andrew Hughes Hallett, 2003. "Central Bank Transparency in Theory and Practice," Royal Economic Society Annual Conference 2003 56, Royal Economic Society.
- M. Demertzis & A. Hughes Hallet, 2002. "Central Bank Transparency in Theory and Practice," WO Research Memoranda (discontinued) 704, Netherlands Central Bank, Research Department.
- DEMERTZIS Maria & HUGHES HALLETT Andrew, . "Central Bank Transparency in Theory and Practice," EcoMod2003 330700041, EcoMod.
- Maria Demertzis & Andrew Hughes Hallet, 2003. "Central Bank Transparency in Theory and Practice," DNB Staff Reports (discontinued) 105, Netherlands Central Bank.
- William A. Branch, 2004. "The Theory of Rationally Heterogeneous Expectations: Evidence from Survey Data on Inflation Expectations," Economic Journal, Royal Economic Society, vol. 114(497), pages 592-621, 07.
- Arminio Fraga & Ilan Goldfajn & André Minella, 2003.
"Inflation Targeting in Emerging Market Economies,"
Working Papers Series
76, Central Bank of Brazil, Research Department.
- Luke Byrne Willard, 2012.
"Does inflation targeting matter? A reassessment,"
Taylor & Francis Journals, vol. 44(17), pages 2231-2244, June.
- repec:dgr:uvatin:20130016 is not listed on IDEAS
- Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
- Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
- Richard Clarida & Jordi Gali & Mark Gertler, 1998.
"Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory,"
NBER Working Papers
6442, National Bureau of Economic Research, Inc.
- Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules And Macroeconomic Stability: Evidence And Some Theory," The Quarterly Journal of Economics, MIT Press, vol. 115(1), pages 147-180, February.
- Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
- Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
- Pfajfar, D. & Zakelj, B., 2011. "Inflation Expectations and Monetary Policy Design : Evidence from the Laboratory (Replaces CentER DP 2009-007)," Discussion Paper 2011-091, Tilburg University, Center for Economic Research.
- Hommes, C.H., 2010.
"The Heterogeneous Expectations Hypothesis: Some Evidence from the Lab,"
CeNDEF Working Papers
10-06, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Hommes, Cars, 2011. "The heterogeneous expectations hypothesis: Some evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 1-24, January.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:halshs-00877409. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.