Inflation Targeting and Output Growth: Evidence from Aggregate European Data

Nicholas Apergis (), Stephen M. Miller (), Alexandros Panethimitakis and Athanassios Vamvakidis
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Alexandros Panethimitakis: University of Athens
Athanassios Vamvakidis: International Monetary Fund

No 2005-06, Working papers from University of Connecticut, Department of Economics

Abstract: This paper evaluates inflation targeting and assesses its merits by comparing alternative targets in a macroeconomic model. We use European aggregate data to evaluate the performance of alternative policy rules under alternative inflation targets in terms of output losses. We employ two major alternative policy rules, forward-looking and spontaneous adjustment, and three alternative inflation targets, zero percent, two percent, and four percent inflation rates. The simulation findings suggest that forward-looking rules contributed to macroeconomic stability and increase monetary policy credibility. The superiority of a positive inflation target, in terms of output losses, emerges for the aggregate data. The same methodology, when applied to individual countries, however, suggests that country-specific flexible inflation targeting can improve employment prospects in Europe.

JEL-codes: E31 E32 E37 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-eec, nep-mac and nep-mon
Date: 2005-03
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Persistent link: http://EconPapers.repec.org/RePEc:uct:uconnp:2005-06

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