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Inflation Targeting and Communication; It Pays off to Read Inflation Reports

  • Katerina Smídková
  • Viktor Kotlán
  • David Navrátil
  • Ales Bulir

Inflation-targeting central banks have a respectable track record at explaining their policy actions and corresponding inflation outturns. Using a simple forward-looking policy rule and an assessment of inflation reports, we provide a new methodology for the empirical evaluation of consistency in central bank communication. We find that the three communication tools-inflation targets, inflation forecasts, and verbal assessments of inflation factors contained in quarterly inflation reports-provided a consistent message in five out of six observations in our 2000-05 sample of Chile, the Czech Republic, Hungary, Poland, Thailand, and Sweden.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 08/234.

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Length: 42
Date of creation: 01 Oct 2008
Date of revision:
Handle: RePEc:imf:imfwpa:08/234
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  1. Viktor Kotlan & David Navratil, 2003. "Inflation Targeting as a Stabilisation Tool: Its Design and Performance in the Czech Republic," Macroeconomics 0310006, EconWPA.
  2. Evans, George W. & Guse, Eran & Honkapohja, Seppo, 2007. "Liquidity Traps, Learning and Stagnation," CEPR Discussion Papers 6355, C.E.P.R. Discussion Papers.
  3. Stephen Cecchetti & Michael Ehrmann, 2000. "Does Inflation Targeting Increase Output volatility? An International Comparison of Policy Maker's Preferences and Outcomes," Working Papers Central Bank of Chile 69, Central Bank of Chile.
  4. Oscar Landerretche & Vittorio Corbo & Klaus Schmidt-Hebbel, 2001. "Does Inflation Targeting Make a Difference," Working Papers Central Bank of Chile 106, Central Bank of Chile.
  5. repec:imf:imfwpa:09/86 is not listed on IDEAS
  6. Athanasios Orphanides & David W. Wilcox, 1996. "The opportunistic approach to disinflation," Finance and Economics Discussion Series 96-24, Board of Governors of the Federal Reserve System (U.S.).
  7. Katerina Smidkova & Miroslav Hrncir & Andrew Yurkovsky, 2000. "Transition to the Strategy of Inflation Targeting," Eastern European Economics, M.E. Sharpe, Inc., vol. 38(6), pages 13-42, December.
  8. Tomas Holub, 2004. "Foreign Exchange Interventions Under Inflation Targeting: The Czech Experience," Research and Policy Notes 2004/01, Czech National Bank, Research Department.
  9. Jan Filacek, 2007. "Why and How to Assess Inflation Target Fulfilment," Working Papers 2007/11, Czech National Bank, Research Department.
  10. repec:imf:imfwpa:05/163 is not listed on IDEAS
  11. Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," Discussion Papers 0708-10, Columbia University, Department of Economics.
  12. Rozkrut, Marek & Rybinski, Krzysztof & Sztaba, Lucyna & Szwaja, Radoslaw, 2007. "Quest for central bank communication: Does it pay to be "talkative"?," European Journal of Political Economy, Elsevier, vol. 23(1), pages 176-206, March.
  13. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
  14. repec:imf:imfwpa:03/9 is not listed on IDEAS
  15. Richard Dennis & John C. Williams, 2007. "Monetary policy, transparency, and credibility: conference summary," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may25.
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