Inflation Targeting and Monetary Policy Activism

Toshitaka Sekine and Yuki Teranishi

No 08-E-13, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: We estimate monetary policy activism, defined as responsiveness of the policy interest rate to inflation, among five inflation-targeting countries (the UK, Canada, Sweden, Australia and New Zealand) plus the G3 (the US, Japan and Germany) by applying a time- varying parameter with a stochastic-volatility model. We find that activism of inflation-targeting countries tends to have increased before (not after) the adoption of the inflation-targeting policy framework and that these countries have experienced a decline in activism in recent years, albeit to different degrees. We further explore this result in terms of the constraint of an inflation target range by developing a formal theoretical model in a New Keynesian framework.

Keywords: Inflation-targeting Policy; Monetary Policy Activism; New Keynesian Model; Markov chain Monte Carlo; Time-varying Parameter with Stochastic Volatility Model (search for similar items in EconPapers)
JEL-codes: C11 E52 E58 (search for similar items in EconPapers)
Date: 2008-07
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:08-e-13

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