IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpma/0502026.html
   My bibliography  Save this paper

Inflation Targeting and Inflation Behavior: A Successful Story?

Author

Listed:
  • Marco Vega

    (Central Bank of Peru & London School of Economics)

  • Diego Winkelried

    (Cambridge University)

Abstract

This paper estimates the effects of inflation targeting (IT) adoption over inflation dynamics using a wide control group. We contribute to the current IT evaluation literature by considering the adoption of IT by a country as a treatment, just as in the program evaluation literature. Hence, we perform propensity score matching to determine suitable counterfactuals to the actual inflation targeters. With this approach we find that IT has helped in reducing the level and volatility of inflation in the countries that adopted it. This result is robust to alternative definitions of treatment and control groups. We also find that the e ect of IT in the persistence of inflation is rather weak and not as categorical as the one associated with the mean and volatility of inflation.

Suggested Citation

  • Marco Vega & Diego Winkelried, 2005. "Inflation Targeting and Inflation Behavior: A Successful Story?," Macroeconomics 0502026, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpma:0502026
    Note: Type of Document - pdf; pages: 18
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/mac/papers/0502/0502026.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416, National Bureau of Economic Research, Inc.
    2. 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.
    3. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 305-353.
    4. James J. Heckman & Hidehiko Ichimura & Petra E. Todd, 1997. "Matching As An Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(4), pages 605-654.
    5. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    6. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(1), pages 1-48.
    7. Andrew T. Levin & Jeremy M. Piger, 2003. "Is inflation persistence intrinsic in industrial economies?," Working Papers 2002-023, Federal Reserve Bank of St. Louis.
    8. Andrews, Donald W K & Chen, Hong-Yuan, 1994. "Approximately Median-Unbiased Estimation of Autoregressive Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 12(2), pages 187-204, April.
    9. Pivetta, Frederic & Reis, Ricardo, 2007. "The persistence of inflation in the United States," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1326-1358, April.
    10. Jon Faust & Dale W. Henderson, 2004. "Is inflation targeting best-practice monetary policy?," Review, Federal Reserve Bank of St. Louis, vol. 86(Jul), pages 117-144.
    11. Rajeev H. Dehejia & Sadek Wahba, 2002. "Propensity Score-Matching Methods For Nonexperimental Causal Studies," The Review of Economics and Statistics, MIT Press, vol. 84(1), pages 151-161, February.
    12. Lars E. O. Svensson, 1999. "Inflation Targeting: Some Extensions," Scandinavian Journal of Economics, Wiley Blackwell, vol. 101(3), pages 337-361, September.
    13. Carlos Robalo Marques, 2004. "Inflation Persistence: Facts or Artefacts?," Working Papers w200408, Banco de Portugal, Economics and Research Department.
    14. Svensson, Lars E. O., 2000. "Open-economy inflation targeting," Journal of International Economics, Elsevier, vol. 50(1), pages 155-183, February.
    15. Manfred J. M. Neumann & Jurgen Von Hagen, 2002. "Does inflation targeting matter?," Review, Federal Reserve Bank of St. Louis, vol. 84(Jul), pages 127-148.
    16. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
    17. repec:bla:scandj:v:101:y:1999:i:3:p:337-61 is not listed on IDEAS
    18. Thórarinn G. Pétursson, 2004. "The effects of inflation targeting on macroeconomic performance," Economics wp23_thorarinn, Department of Economics, Central bank of Iceland.
    19. 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.
    20. Frederic Mishkin & Klaus Schmidt-Hebbel, 2002. "A Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?," 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 4, pages 171-220, Central Bank of Chile.
    21. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, vol. 3(Aug), pages 9-110.
    22. repec:rus:hseeco:181565 is not listed on IDEAS
    23. Edwin M. Truman, 2003. "Inflation Targeting in the World Economy," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 346.
    24. James Heckman & Hidehiko Ichimura & Jeffrey Smith & Petra Todd, 1998. "Characterizing Selection Bias Using Experimental Data," Econometrica, Econometric Society, vol. 66(5), pages 1017-1098, September.
    25. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 65(2), pages 261-294.
    26. Emery, Kenneth M., 1994. "Inflation persistence and Fisher effects: Evidence of a regime change," Journal of Economics and Business, Elsevier, vol. 46(3), pages 141-152, August.
    27. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, vol. 86(Jul), pages 51-80.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Svensson, Lars E.O., 2010. "Inflation Targeting," Handbook of Monetary Economics, in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 22, pages 1237-1302, Elsevier.
    2. Broto, Carmen, 2011. "Inflation targeting in Latin America: Empirical analysis using GARCH models," Economic Modelling, Elsevier, vol. 28(3), pages 1424-1434, May.
    3. de Mendonça, Helder Ferreira & de Guimarães e Souza, Gustavo José, 2012. "Is inflation targeting a good remedy to control inflation?," Journal of Development Economics, Elsevier, vol. 98(2), pages 178-191.
    4. Petrevski, Goran, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," EconStor Preprints 271122, ZBW - Leibniz Information Centre for Economics.
    5. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Monetary Policy under Inflation Targeting: An Introduction," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 1, pages 001-022, Central Bank of Chile.
    6. René TAPSOBA, 2010. "Does Inflation Targeting Improve Fiscal Discipline? An Empirical Investigation," Working Papers 201020, CERDI.
    7. Aliyu, Shehu Usman Rano & Englama, Abwaku, 2009. "Is Nigeria Ready for Inflation Targeting?," MPRA Paper 14870, University Library of Munich, Germany, revised 26 Apr 2009.
    8. 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.
    9. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.),Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372, Central Bank of Chile.
    10. Mr. Scott Roger & Mr. Mark R. Stone, 2005. "On Target? the International Experience with Achieving Inflation Targets," IMF Working Papers 2005/163, International Monetary Fund.
    11. Federico Ravenna, 2005. "The European Monetary Union as a Commitment Device for New EU Member States," Working Papers 98, Oesterreichische Nationalbank (Austrian Central Bank).
    12. Thorarinn G. Petursson, 2005. "Inflation Targeting and its Effects on Macroeconomic Performance," SUERF Studies, SUERF - The European Money and Finance Forum, number 2005/5 edited by Morten Balling, May.
    13. Carl E. Walsh, 2009. "Inflation Targeting: What Have We Learned?," International Finance, Wiley Blackwell, vol. 12(2), pages 195-233, August.
    14. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters, in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416, National Bureau of Economic Research, Inc.
    15. Coulibaly, Yacouba, 2024. "Resource-backed loans and ecological efficiency of human development: Evidence from African countries," Ecological Economics, Elsevier, vol. 224(C).
    16. Minea, Alexandru & Tapsoba, René, 2014. "Does inflation targeting improve fiscal discipline?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 185-203.
    17. Cruz, Christopher John, 2022. "Reduced macroeconomic volatility after adoption of inflation targeting: Impulses or propagation?," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 759-770.
    18. Metin Ozdemir & Selim Tuzunturk, 2009. "Is price stability enough? Macroeconomic performance of inflation targeting in developing countries," International Journal of Sustainable Economy, Inderscience Enterprises Ltd, vol. 1(4), pages 352-372.
    19. Petrevski, Goran, 2023. "Determinants of Inflation Targeting: A Survey of Empirical Literature," EconStor Preprints 271121, ZBW - Leibniz Information Centre for Economics.
    20. Lucotte, Yannick, 2010. "Adoption of inflation targeting and tax revenue performance in emerging market economies: An empirical investigation," MPRA Paper 23871, University Library of Munich, Germany.

    More about this item

    Keywords

    Inflation Targeting; matching methods;

    JEL classification:

    • E - Macroeconomics and Monetary Economics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpma:0502026. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA The email address of this maintainer does not seem to be valid anymore. Please ask EconWPA to update the entry or send us the correct address (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.