Transitions between monetary policy frameworks and their effects on economic performance
David Cobham and
Economic Modelling, 2021, vol. 95, issue C, 311-329
The widespread adoption of inflation targeting (IT) from the early 1990s led to investigations of its effect on macroeconomic performance (inflation and growth), with the emergence of a majority view that the effects were small for advanced countries but possibly larger for emerging economies. We revisit the issue, using a new de facto (rather than de jure) classification of monetary policy frameworks and employing the difference-in-differences approach with regression to the mean effects in order to deal with the problem of endogeneity. We find small effects for advanced countries but insignificant effects for emerging economies. We then question the nature of the mean to which regression occurs and suggest instead that there are strong international trend/network effects leading policymakers to make similar policy decisions (with similar macro outcomes) from within different frameworks. We also find IT has not affected macro performance in the period after the Global Financial Crisis.
Keywords: Monetary policy frameworks; Inflation targets; Difference-in-differences; Regression to the mean; International trends; Network effects (search for similar items in EconPapers)
JEL-codes: E42 E52 E61 F42 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:95:y:2021:i:c:p:311-329
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