Inflation Target Credibility: Do the Financial Markets Find the Targets Believable?

Bedri Kamil Onur Tas, Mustafa Cagri Peker

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)

Abstract

We investigate the credibility of inflation targeting (IT) central banks (CBs) by estimating perceived inflation targets of the financial markets. We calculate financial markets’ beliefs about the inflation targets of 24 IT countries. Then, we analyse whether the financial markets’ beliefs about inflation targets match the announced targets. We conclude that the perceived upper bound of the inflation target is significantly higher than the announced one in many countries. Additionally, the perceived target band is narrower and asymmetric around the mid-point of the target for most CBs. We examine the implications of these findings and find that IT CBs are more likely to miss their targets when the perceptions of the financial markets are higher than the announced IT targets. These results indicate that IT CBs should pay attention to the perceptions of the announced targets when implementing policy actions.

Original languageEnglish
Pages (from-to)1125-1147
Number of pages23
JournalOxford Bulletin of Economics and Statistics
Volume79
Issue number6
DOIs
Publication statusPublished - Dec 2017
Externally publishedYes

ASJC Scopus subject areas

  • Statistics and Probability
  • Social Sciences (miscellaneous)
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

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