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Inflation targeting and interest rates

Author

Listed:
  • Lanzafame, Matteo
  • Nogueira, Reginaldo

Abstract

Inflation Targeting (IT) can be expected to play a role in structurally reducing nominal interest rates, by lowering a country’s inflation expectations and risk premium. Relying on a panel of 52 advanced and emerging economies over the 1975-2009 years, we carry out a formal investigation of this hypothesis. Our econometric strategy adopts a flexible and efficient panel estimation framework, controlling for a number of issues usually neglected in the literature, such as parameter heterogeneity and cross-section dependence. Our findings are supportive of the optimistic view on IT, indicating that adoption of this monetary regime leads to lower nominal interest rates.

Suggested Citation

  • Lanzafame, Matteo & Nogueira, Reginaldo, 2013. "Inflation targeting and interest rates," MPRA Paper 46153, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:46153
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    File URL: https://mpra.ub.uni-muenchen.de/46153/1/MPRA_paper_46153.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. García-Solanes, José & Torrejón-Flores, Fernando, 2015. "Exchange-rate variations and the rate of inflation in emerging economies," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    2. Felipe Santos Tostes & Helder Ferreira De Mendonça, 2016. "Credibility On Pass-Through In Brazil," Anais do XLII Encontro Nacional de Economia [Proceedings of the 42nd Brazilian Economics Meeting] 022, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    3. repec:voj:journl:v:63:y:2016:i:5:p:563-579 is not listed on IDEAS
    4. Nogueira Júnior, Reginaldo Pinto, 2010. ""Pass-through" Cambial e Ambiente Inflacionário no Brasil: Existe Alguma Relação?," Revista Brasileira de Economia - RBE, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil), vol. 64(1), March.
    5. Tobal Martín & Yslas Renato, 2016. "Two Models of FX Market Interventions: The Cases of Brazil and Mexico," Working Papers 2016-14, Banco de México.
    6. Helder Mendonça & Felipe Tostes, 2015. "The Effect of Monetary and Fiscal Credibility on Exchange Rate Pass-Through in an Emerging Economy," Open Economies Review, Springer, vol. 26(4), pages 787-816, September.

    More about this item

    Keywords

    Inflation targeting; Interest rates; panel data; multifactor modeling.;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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