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Short- and Long-Run Differences in the Treatment Effects of Inflation Targeting on Developed and Developing Countries

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  • WenShwo Fang

    (Department of Economics, Feng Chia University)

  • Stephen M. Miller

    (Department of Economics, University of Nevada, Las Vegas)

  • ChunShen Lee

    (Department of Economics, Feng Chia University)

Abstract

Allowing for time-varying treatment effects, this paper provides new findings on the effects of inflation targeting on economic performance over time. First, developed countries lower inflation and reach their targets rapidly in two years and developing countries reduce inflation gradually in that disinflation still continues moving to their long-run targets. Second, intertemporal tradeoffs occur for eight developed-country targeters. That is, targeting inflation significantly reduces inflation at the costs of higher inflation and growth variability and a lower output growth in the short-run, although no significant effects occur in the long-run. In contrast, no costs, only gains, emerge for thirteen developing-country targeters. Now, targeters achieve lower inflation following policy adoption as well as lower inflation and output growth variability in the short-run and long-run. Output growth catches up in a longer time horizon, although this effect is not significant. The paper discusses the interpretations of our empirical findings and the implications for monetary policy.

Suggested Citation

  • WenShwo Fang & Stephen M. Miller & ChunShen Lee, 2010. "Short- and Long-Run Differences in the Treatment Effects of Inflation Targeting on Developed and Developing Countries," Working Papers 1003, University of Nevada, Las Vegas , Department of Economics, revised Aug 2010.
  • Handle: RePEc:nlv:wpaper:1003
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    Cited by:

    1. Giorgio Canarella & Stephen M Miller, 2017. "Inflation Persistence Before and After Inflation Targeting: A Fractional Integration Approach," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 43(1), pages 78-103, January.
    2. Nikolaos Antonakakis & Christina Christou & Luis A. Gil-Alana & Rangan Gupta, 2020. "Inflation-Targeting and Inflation Volatility: International Evidence from the Cosine-Squared Cepstrum," Working Papers 202021, University of Pretoria, Department of Economics.
    3. Nikolaos Antonakakis & Christina Christou & Luis A. Gil-Alana & Rangan Gupta, 2021. "Inflation-targeting and inflation volatility: International evidence from the cosine-squared cepstrum," International Economics, CEPII research center, issue 167, pages 29-38.
    4. Szafranek, Karol, 2021. "Disentangling the sources of inflation synchronization. Evidence from a large panel dataset," International Review of Economics & Finance, Elsevier, vol. 76(C), pages 229-245.

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    More about this item

    Keywords

    inflation targeting; time-varying treatment effects; short-run costs; long-run irrelevance;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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