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Inflation Targeting as a Shock Absorber

Marcel Fratzscher (), Christoph Grosse Steffen and M. Rieth

Working papers from Banque de France

Abstract: We study the characteristics of inflation targeting as a shock absorber in response to large shocks in the form of natural disasters for a sample of 76 countries over the period 1970-2015. We find that inflation targeting improves macroeconomic performance following such shocks as it lowers inflation, raises output growth, and reduces inflation and growth variability compared to alternative monetary regimes. This performance is mostly due to a stronger response of monetary policy and fiscal policy under inflation targeting. Finally, we show that only hard but not soft targeting reaps the fruits: deeds, not words, matter for successful monetary stabilization.

Keywords: Monetary policy; Central banks; Monetary regimes; Dynamic effects. (search for similar items in EconPapers)
JEL-codes: E42 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
Date: 2017
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Working Paper: Inflation Targeting as a Shock Absorber (2018) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:655

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