Keep your word: Time-varying inflation targets and inflation targeting performance

Research output: Contribution to journalArticlepeer-review

Abstract

This paper investigates the implicit inflation targets of inflation targeting (IT) central banks (CBs). The implicit (perceived) inflation targets of IT CBs derived from their actions (policy interest rates) are calculated before and after IT adoption. We conclude that after adoption of IT implicit targets become significantly lower. Other factors that cause CBs to change their implicit targets are inflation, exchange rate and trade balance. Finally, we find that CBs that do not follow their announced targets miss their inflation targets. The results indicate that IT CBs should follow their announced targets when setting policy interest rates.

Original languageEnglish
Pages (from-to)160-182
Number of pages23
JournalManchester School
Volume82
Issue number2
DOIs
Publication statusPublished - Mar 2014
Externally publishedYes

ASJC Scopus subject areas

  • Economics and Econometrics

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