Do Actions Speak Louder Than Words? Assessing the Effects of Inflation Targeting Track Records on Macroeconomic Performance

Zhongxia Zhang and Shiyi Wang

No 2022/227, IMF Working Papers from International Monetary Fund

Abstract: Inflation Targeting (IT) has become a prevalent monetary policy framework in the past three decades, as more central banks adopted and maintained price stability as their primary monetary policy mandate. Using a dataset of 68 major advanced countries and emerging markets economies, this paper evaluates the effects of inflation targeting countries’ track records on their macroeconomic performance, measured by real GDP growth and CPI inflation. This paper constructs three novel inflation targeting track record measures and establishes new stylized facts on the heterogeneity of inflation targeting countries’ tendency in managing inflation with respect to their stated objectives. This paper finds evidence that most targeters conduct dynamic inflation targeting by frequently updating inflation target bands, and their band sizes are wide-ranging across IT countries. We empirically study the contemporaneous and future effects of inflation targeting track records on countries’ macroeconomic performance. Results from the dynamic panel and local projection regressions suggest that better IT track records do not lead to superior growth and inflation rates in the short term.

Keywords: inflation targeting; track records; dynamic target points and ranges; economic growth and inflation.; novel inflation targeting track record measure; inflation target band; countries' track records; effects of inflation targeting track records; better IT; Inflation; Monetary policy frameworks; Nominal effective exchange rate; Commodity price fluctuations; Global (search for similar items in EconPapers)
Pages: 47
Date: 2022-11-11
New Economics Papers: this item is included in nep-cba, nep-fdg and nep-mon
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