The Effect of Inflation Targets on the Level of Expected Inflation in Five Countries

David Johnson ()

The Review of Economics and Statistics, 2003, vol. 85, issue 4, 1076-1081

Abstract: Did inflation targets reduce the level of expected inflation in Australia, Canada, New Zealand, Sweden, and the United Kingdom? In this note, predictions of forecasts by professional forecasters are constructed for five consecutive 12-month periods after the announcement of targets. These predictions use a variety of information variables known to forecasters at the time they make their forecasts. The results show that, after the announcement of targets, predicted forecasts are less than actual forecasts in Australia, Canada, New Zealand, and Sweden. This is evidence that targets reduced the level of expected inflation. No evidence of such effects is found in the United Kingdom. © 2003 President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2003
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