EconPapers    
Economics at your fingertips  
 

Examining the success of the central banks in inflation targeting countries: the dynamics of the inflation gap and institutional characteristics

Ardakani Omid M. and N Kishor ()
Additional contact information
Ardakani Omid M.: Georgia Southern University, Economics, Savannah, United States of America

Studies in Nonlinear Dynamics & Econometrics, 2018, vol. 22, issue 1, 19

Abstract: This paper analyzes the performance of the central banks in inflation targeting (IT) countries by examining their success in achieving their explicit inflation targets. For this purpose, we decompose the inflation gap, the difference between actual inflation and the inflation target, into predictable and unpredictable components. We argue that the central banks are successful if the predictable component diminishes over time. The predictable component of the inflation gap is measured by the conditional mean of a parsimonious time-varying autoregressive model. Our results find considerable heterogeneity in the success of these IT countries in achieving their targets at the start of this policy regime. Our findings suggest that the central banks of the IT adopting countries started targeting inflation implicitly before becoming an explicit inflation targeter. The panel data analysis suggests that the relative success of these countries in reducing the gap is influenced by their institutional characteristics, particularly fiscal discipline and macroeconomic performance.

Keywords: inflation gap; inflation targeting; institutional characteristics; predictability; Time-varying autoregressive model (search for similar items in EconPapers)
JEL-codes: E52 E58 C32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.degruyter.com/view/j/snde.2018.22.issu ... -0085.xml?format=INT (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:sndecm:v:22:y:2018:i:1:p:19:n:7

Ordering information: This journal article can be ordered from
https://www.degruyter.com/view/j/snde

Access Statistics for this article

Studies in Nonlinear Dynamics & Econometrics is currently edited by Bruce Mizrach

More articles in Studies in Nonlinear Dynamics & Econometrics from De Gruyter
Bibliographic data for series maintained by Peter Golla ().

 
Page updated 2019-01-24
Handle: RePEc:bpj:sndecm:v:22:y:2018:i:1:p:19:n:7