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Inflation Targeting and Inflation Persistence in Asia-Pacific

Listed author(s):
  • 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)

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.

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Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 252011.

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Length: 29 pages
Date of creation: Aug 2011
Handle: RePEc:hkm:wpaper:252011
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