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Does Inflation Targeting Matter?

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  • Niamh Sheridan
  • Laurence M. Ball

Abstract

This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare 7 OECD countries that adopted inflation targeting in the early 1990s to 13 that did not. After the early 1990s, performance improved along many dimensions for both targeting and nontargeting countries. In some cases, the targeters improved by more. However, these differences are explained by the fact that targeters performed worse than nontargeters before the early 1990s, and there is regression towards the mean. Once one controls for this, there is no evidence that inflation targeting improves performance.

Suggested Citation

  • Niamh Sheridan & Laurence M. Ball, 2003. "Does Inflation Targeting Matter?," IMF Working Papers 03/129, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:03/129
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    References listed on IDEAS

    as
    1. Svensson, L.E.O., 1994. "The Swedish Experiences of Inflation Target," Papers 587, Stockholm - International Economic Studies.
    2. Mishkin, Frederic S., 1998. "International Experiences With Different Monetary Policy Regimes," Seminar Papers 648, Stockholm University, Institute for International Economic Studies.
    3. Ball, Laurence, 1999. "Efficient Rules for Monetary Policy," International Finance, Wiley Blackwell, vol. 2(1), pages 63-83, April.
    4. Svensson, Lars E. O., 1997. "Inflation forecast targeting: Implementing and monitoring inflation targets," European Economic Review, Elsevier, vol. 41(6), pages 1111-1146, June.
    5. 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.
    6. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    7. Kuttner, Kenneth N. & Posen, Adam S., 1999. "Does talk matter after all? Inflation targeting and central bank behavior," CFS Working Paper Series 1999/04, Center for Financial Studies (CFS).
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    12. Frederic S. Mishkin, 2002. "Does inflation targeting matter? - commentary," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 149-154.
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    16. Mark Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting; Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
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    More about this item

    Keywords

    Central banks and their policies; Monetary policy; Inflation Targeting Regime; inflation; inflation targeting; average inflation; inflation-targeting; Prices; Business Fluctuations; and Cycles: General (includes Measurement and Data); Inflation Targeting Regimes;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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