A Note on the Anchoring Effect of Explicit Inflation Targets

Jan Libich ()

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Empirical literature provided convincing evidence that explicit (ie legislated) inflation targets anchor expectations. We propose a novel game theoretic framework with generalized timing that allows us to formally capture this beneficial anchoring effect. Using the framework we identify several factors that influence whether and how strongly expectations are anchored, namely: (i) the public’s cost of decision-making, (ii) the public’s inflation aversion, (iii) the slope of the Phillips curve, (iv) the magnitude of supply shocks, (v) the degree of central bank conservatism, and under many (but not all) circumstances, (vi) the explicitness of the inflation target.

JEL-codes: E61 E63 (search for similar items in EconPapers)
Date: 2009-08
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Related works:
Journal Article: A NOTE ON THE ANCHORING EFFECT OF EXPLICIT INFLATION TARGETS (2009)
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Persistent link: http://EconPapers.repec.org/RePEc:een:camaaa:2009-21

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