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Inflation Targeting and Inflation Persistence in Asia-Pacific

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  • Stefan Gerlach

    (Institute for Monetary and Financial Stability and Goethe-University Frankfurt and Hong Kong Institute for Monetary Research)

  • Peter Tillmann

    (Justus-Liebig-University Giessen and Institute for Monetary and Financial Stability and Hong Kong Institute for Monetary Research)

Abstract

Following the Asian financial crisis in 1997-98, a number of Asian central banks adopted inflation targeting. While it is possible for the average inflation rate to be close to target, deviations of inflation could nevertheless be large and protracted. We therefore explore how successful this framework has been by looking at the persistence of inflation, as measured by the sum of the coefficients in an autoregressive model for inflation, using a median unbiased estimator and bootstrapped confidence bands. We find a significant reduction in inflation persistence following the adoption of inflation targeting. The speed by which persistence falls varies across countries. Interestingly, the economies not adopting inflation targeting do not show a decline in persistence. Measuring the performance of monetary policy strategies in terms of inflation persistence rather than the level of inflation shows that inflation targeting performs better than alternative strategies.

Suggested Citation

  • Stefan Gerlach & Peter Tillmann, 2011. "Inflation Targeting and Inflation Persistence in Asia-Pacific," Working Papers 252011, Hong Kong Institute for Monetary Research.
  • Handle: RePEc:hkm:wpaper:252011
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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation Targeting; Asia; Inflation Persistence; Monetary Policy Strategy;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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