Effect of Inflation Targeting on Inflation Uncertainty: A SWARCH Analysis

Bedri Kamil Onur Tas*, Hasan Murat Ertugrul

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Citations (Scopus)

Abstract

We analyse the success of inflation targeting (IT) in decreasing inflation volatility by investigating inflation variance before and after IT. We contribute to the literature by implementing Markov-Switching AutoRegressive Conditional Heteroscedastic methodology to model inflation volatility. After determining the unbiased conditional variances of inflation in each inflation-targeting country, we investigate structural breaks in inflation variability by both analysing individual countries and conducting a panel data analysis. All of these methods conclude that IT helps most of the countries to achieve lower inflation uncertainty (volatility). We also examine the country-specific factors that determine the effectiveness of inflation-targeting adoption.

Original languageEnglish
Pages (from-to)444-459
Number of pages16
JournalAustralian Economic Review
Volume46
Issue number4
DOIs
Publication statusPublished - Dec 2013
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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