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Inflation Targeting Twenty Years on: Where, When, Why, With what Effects, What lies ahead?

  • Klaus Schmidt-Hebbel.

    ()

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

This paper looks back at 20 years of inflation targeting (IT) in the world, reviewing previous findings and reporting new cross-country and panel-data evidence on the determinants or IT regime choice and the results of IT adoption. After describing the where and when of IT adoption, the paper assesses the determinants of why countries choose this monetary regime against alternative candidates. Which have been the main results under IT? Next the paper focuses on several dimensions of monetary policy performance under IT. One is target achievement; beyond measuring cross-country differences in target deviations, the paper assesses empirically what lies behind those deviations. Two, it reviews monetary policy efficiency more broadly, comparing output and inflation volatility under IT to volatility observed in non-IT experiences. Three, it surveys descriptive evidence on monetary policy transparency attained under IT in comparison to other monetary regimes. A discussion of the very important challenges posed by the recent boom-and-bust cycle to IT close the paper.

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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 360.

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Date of creation: 2009
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Handle: RePEc:ioe:doctra:360
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  1. Klaus Schmidt-Hebbel & Alejandro M. Werner, 2002. "Inflation Targeting in Brazil, Chile, and Mexico: Performance, Credibility, and the Exchange Rate," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
  2. De Fiore, Fiorella & Tristani, Oreste, 2009. "Optimal monetary policy in a model of the credit channel," Working Paper Series 1043, European Central Bank.
  3. Refet S. Gürkaynak & Andrew T. Levin & Andrew N. Marder & Eric T. Swanson, 2007. "Inflation Targeting and the Anchoring of Inflation Expectations in the Western Hemisphere," 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 11, pages 415-465 Central Bank of Chile.
  4. Gustavo Leyva, 2008. "The Choice of Inflation Targeting," Working Papers Central Bank of Chile 475, Central Bank of Chile.
  5. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
  6. Klaus Schmidt-Hebbel; & Carl E. Walsh, 2008. "Monetary Policy Under Uncertainty and Learning: An Overview," Working Papers Central Bank of Chile 509, Central Bank of Chile.
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