Comparison of the Efficiency of Pure and of Hybrid Inflation Targeting from the Point of View of Inflation Control

I. D. Medvedev ()
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I. D. Medvedev: Institute of Economic Forecasting, Russian Academy of Sciences

Studies on Russian Economic Development, 2023, vol. 34, issue 2, 274-283

Abstract: Abstract— The article compares the effectiveness of various monetary policy regimes in terms of controlling inflation. It is shown that the hybrid inflation targeting regime, which combines the management of inflation as the main goal and the exchange rate as an additional one, makes it possible to simultaneously reduce the volatility of both inflation and the exchange rate. Thus, it is preferable to the pure inflation targeting regime in order to ensure the stability of the financial conditions for the development of the economy. Hypothesis testing was carried out by modeling the joint dynamics of inflation, exchange rate, and oil price volatilities in the VAR model. Volatility estimates were obtained using EGARCH models on monthly data for the period 1980–2021, for oil prices, 1992–2021, for the consumer price index, and 1995–2021 for the exchange rate.

Keywords: monetary policy; inflation; exchange rate; budget rule; targeting; econometric modeling (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1134/S1075700723020089

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