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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. Vittorio Corbo & Óscar Landerretche & Klaus Schmidt-Hebbel, 2002. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 5, pages 221-270 Central Bank of Chile.
  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. Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," NBER Working Papers 13259, National Bureau of Economic Research, Inc.
  4. Holub, Tomáš, 2004. "Foreign exchange interventions under inflation targeting: the Czech Experience," Research Notes 17, Deutsche Bank Research.
  5. Alina Carare & Mark R. Stone, 2003. "Inflation Targeting Regimes," IMF Working Papers 03/9, International Monetary Fund.
  6. Richard Dennis & John C. Williams, 2007. "Monetary policy, transparency, and credibility: conference summary," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue may25.
  7. 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.).
  8. Stephen G. Cecchetti & Michael Ehrmann, 2002. "Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy: Rules and Transmission Mechanisms, edition 1, volume 4, chapter 9, pages 247-274 Central Bank of Chile.
  9. Viktor Kotlan & David Navratil, 2003. "Inflation Targeting as a Stabilisation Tool: Its Design and Performance in the Czech Republic," Macroeconomics 0310006, EconWPA.
  10. Jan Filacek, 2007. "Why and How to Assess Inflation Target Fulfilment," Working Papers 2007/11, Czech National Bank, Research Department.
  11. Charles Freedman & Douglas Laxton, 2009. "Why Inflation Targeting?," IMF Working Papers 09/86, International Monetary Fund.
  12. Scott Roger & Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 05/163, International Monetary Fund.
  13. 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.
  14. 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.
  15. Jiri Jonas & Frederic S. Mishkin, 2003. "Inflation Targeting in Transition Countries: Experience and Prospects," NBER Working Papers 9667, National Bureau of Economic Research, Inc.
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