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Has Inflation Targeting Improved Monetary Policy? Evaluating Policy Effectiveness in Australia, Canada, and New Zealand

  • Pierre L. Siklos

    ()

    (Department of Economics, Wilfrid Laurier University and Viessman Research Centre)

  • Diana N. Weymark

    ()

    (Department of Economics, Vanderbilt University)

The degree to which explicit inflation targets contribute to the success of price stabilization policies has not been conclusively established. To assess the impact of announced inflation targets on the effectiveness of monetary policy, we construct indicators of inflation pressure that allow us to characterize the impact and effectiveness of monetary policy quantitatively. We examine the records of three inflation targeting economies, Australia, Canada, and New Zealand, and compare them to the US. We find that the inflation targeting countries have substantially lower inflation pressure and that inflation targeting reduces the size of interest rate changes needed to moderate inflation.

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File URL: http://www.accessecon.com/pubs/VUECON/vu09-w06.pdf
File Function: First version, 2009
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Paper provided by Vanderbilt University Department of Economics in its series Vanderbilt University Department of Economics Working Papers with number 0906.

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Date of creation: Apr 2009
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Handle: RePEc:van:wpaper:0906
Contact details of provider: Web page: http://www.vanderbilt.edu/econ/wparchive/index.html

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  1. Siklos,Pierre L., 2002. "The Changing Face of Central Banking," Cambridge Books, Cambridge University Press, number 9780521780254, November.
  2. Lothian, James R. & Wu, Liuren, 2011. "Uncovered interest-rate parity over the past two centuries," Journal of International Money and Finance, Elsevier, vol. 30(3), pages 448-473, April.
  3. Weymark, Diana N, 1998. "A General Approach to Measuring Exchange Market Pressure," Oxford Economic Papers, Oxford University Press, vol. 50(1), pages 106-21, January.
  4. Andrew K. Rose, 2006. "A Stable International Monetary System Emerges: Inflation Targeting is Bretton Woods, Reversed," NBER Working Papers 12711, National Bureau of Economic Research, Inc.
  5. Johnson, David R., 2002. "The effect of inflation targeting on the behavior of expected inflation: evidence from an 11 country panel," Journal of Monetary Economics, Elsevier, vol. 49(8), pages 1521-1538, November.
  6. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
  7. Lin, Shu & Ye, Haichun, 2007. "Does inflation targeting really make a difference? Evaluating the treatment effect of inflation targeting in seven industrial countries," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2521-2533, November.
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