Does Inflation Targeting Matter ? An Experimental Investigation

Camille Cornand and Cheick Kader M'Baye
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Cheick Kader M'Baye: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique

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Abstract: We use laboratory experiments with human subjects to test the relevance of di-fferent inflation targeting regimes. In particular and within the standard New Keynesian model, we evaluate to what extent communication of the inflation target is relevant to the success of inflation targeting. We -find that if the central bank only cares about inflation stabilization, announcing the inflation target does not make a difference in terms of macroeconomic performances compared to a standard active monetary policy. However, if the central bank also cares about the stabilization of the economic activity, communicating the target helps to reduce the volatility of inflation, interest rate, and output gap although their average levels are not aff-ected. This finding is consistent with those of the theoretical literature and provides a rationale for the adoption of a flexible inflation targeting regime.

Keywords: Inflation targeting; inflation expectations; monetary policy; New Keynesian model; laboratory experiments (search for similar items in EconPapers)
Date: 2013-10-28
New Economics Papers: this item is included in nep-cba, nep-exp, nep-mac and nep-mon
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00877409v1
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: DOES INFLATION TARGETING MATTER? AN EXPERIMENTAL INVESTIGATION (2018)
Working Paper: Does inflation targeting matter? An experimental investigation (2018)
Working Paper: Does Inflation Targeting Matter ? An Experimental Investigation (2013)
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