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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. Andrew Levin & Volker Wieland & John C. Williams, 1998. "Robustness of Simple Monetary Policy Rules under Model Uncertainty," NBER Working Papers 6570, National Bureau of Economic Research, Inc.
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  7. David Laidler, 2007. "Successes and Failures of Monetary Policy Since the 1950s," University of Western Ontario, Economic Policy Research Institute Working Papers 20072, University of Western Ontario, Economic Policy Research Institute.
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  12. Vega, Marco & Winkelried, Diego, 2004. "Inflation Targeting and Inflation Behavior: A Successful Story?," MPRA Paper 838, University Library of Munich, Germany.
  13. Goodfriend, Marvin, 1991. "Interest rates and the conduct of monetary policy," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 34(1), pages 7-30, January.
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  25. repec:cup:cbooks:9780521780254 is not listed on IDEAS
  26. David Johnson, 2003. "The Effect of Inflation Targets on the Level of Expected Inflation in Five Countries," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 1076-1081, November.
  27. Sean Collins & Pierre L. Siklos, 2004. "Optimal Monetary Policy Rules and Inflation Targets: Are Australia, Canada, and New Zealand Different from the U.S.?," Open Economies Review, Springer, vol. 15(4), pages 347-362, October.
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