Expectations Anchoring in Inflation Targeting Regimes
Central banks adopt an inflation targeting policy with a goal to anchor inflation expectations. We argue that the expectations anchoring test developed in the context of the Krugman (1991) exchange rate targeting model is well-suited for inflation targeting applications. The test quantifies nonlinearity between realized and expected inflation for very high and very low inflation levels. It does not require comparison with the control group of non-targeting countries, avoiding critique of the benchmark approach. We test inflation targeting in Australia, Canada, New Zealand, Sweden, the United Kingdom and find weak support for expectations anchoring.
|Date of creation:||Sep 2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.business.vcu.edu/economics
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Frederic S. Mishkin & Adam S. Posen, 1997.
"Inflation targeting: lessons from four countries,"
Economic Policy Review,
Federal Reserve Bank of New York, issue Aug, pages 9-110.
- Timo Terasvirta, 2004.
"A Time Series Model for an Exchange Rate in a Target Zone with Applications,"
Econometric Society 2004 Australasian Meetings
340, Econometric Society.
- Lundbergh, Stefan & Terasvirta, Timo, 2006. "A time series model for an exchange rate in a target zone with applications," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 579-609.
- Lundbergh, Stefan & Teräsvirta, Timo, 2003. "A time series model for an exchange rate in a target zone with applications," SSE/EFI Working Paper Series in Economics and Finance 533, Stockholm School of Economics.
- RUGE-MURCIA, Francisco J., 1998.
"Uncovering Financial Markets Beliefs About Inflation Targets,"
Cahiers de recherche
9803, Universite de Montreal, Departement de sciences economiques.
- Francisco J. Ruge-Murcia, 2000. "Uncovering financial markets' beliefs about inflation targets," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 15(5), pages 483-512.
- Ruge-Murcia, F.J., 1998. "Uncovering Financial Markets Beliefs About Inflation Targets," Cahiers de recherche 9803, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
- Geert Bekaert & Stephen F. Gray, 1996.
"Target Zones and Exchange Rates: An Empirical Investigation,"
NBER Working Papers
5445, National Bureau of Economic Research, Inc.
- Bekaert, Geert & Gray, Stephen F., 1998. "Target zones and exchange rates:: An empirical investigation," Journal of International Economics, Elsevier, vol. 45(1), pages 1-35, June.
- 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.
- Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001.
"One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?,"
NBER Working Papers
8397, National Bureau of Economic Research, Inc.
- Frederic S. Mishkin & Klaus Schmidt-Hebbel, 2001. "One decade of inflation targeting in the world : What do we know and what do we need to know?," Working Papers Central Bank of Chile 101, Central Bank of Chile.
- Krugman, Paul R, 1991.
"Target Zones and Exchange Rate Dynamics,"
The Quarterly Journal of Economics,
MIT Press, vol. 106(3), pages 669-82, August.
- Pesaran, M Hashem & Ruge-Murcia, Francisco J, 1999. "Analysis of Exchange-Rate Target Zones Using a Limited-Dependent Rational-Expectations Model with Jumps," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(1), pages 50-66, January.
- Robert Amano & Richard Black & Marcel Kasumovich, 1997. "A Band-Aid Solution to Inflation Targeting," Working Papers 97-11, Bank of Canada.
- Catherine S. Forbes & Paul Kofman, 2000.
"Bayesian Target Zones,"
Research Paper Series
32, Quantitative Finance Research Centre, University of Technology, Sydney.
- Catherine S. Forbes & Paul Kofman, 2000. "Bayesian Target Zones," Econometric Society World Congress 2000 Contributed Papers 0575, Econometric Society.
- Robert J. Tetlow, 2008.
"Inflation Targeting and Traget Instability,"
International Journal of Central Banking,
International Journal of Central Banking, vol. 4(4), pages 151-192, December.
- Paul Krugman & Marcus Miller, 1992. "Exchange Rate Targets and Currency Bands," NBER Books, National Bureau of Economic Research, Inc, number krug92-1, June.
- Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
- Lars E.O. Svensson, 1995.
"The Swedish Experience of an Inflation Target,"
NBER Working Papers
4985, National Bureau of Economic Research, Inc.
- Mundaca, B. Gabriela, 2001. "Central bank interventions and exchange rate band regimes," Journal of International Money and Finance, Elsevier, vol. 20(5), pages 677-700, October.
- Norman Loayza & Raimundo Soto, 2002. "Inflation Targeting: An Overview," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 1, pages 001-022 Central Bank of Chile.
- Lars E.O. Svensson, 2003. "Monetary policy and learning," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 11-16.
- Forbes, C.S. & Kofman, P., 2000. "Bayesian Soft Target Zones," Monash Econometrics and Business Statistics Working Papers 4/00, Monash University, Department of Econometrics and Business Statistics.
- Li, Kai, 1999. "Exchange Rate Target Zone Models: A Bayesian Evaluation," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(5), pages 461-90, Sept.-Oct.
When requesting a correction, please mention this item's handle: RePEc:vcu:wpaper:0503. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oleg Korenok)
If references are entirely missing, you can add them using this form.