Does Inflation Targeting Increase Output volatility? An International Comparison of Policy Maker's Preferences and Outcomes

Stephen Cecchetti and Michael Ehrmann

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Aggregate shocks that move output and inflation in opposite directions create a tradeoff between output and inflation variability, forcing central bankers to make a choice. Differences in the degree of accommodation of shocks lead to disparate variability outcomes, revealing national central banker's relative weight on output and inflation variability in their preferences. We use estimates of the structure of 23 industrialized and developing economies, including 9 that target inflation explicitly, together with the realized output and inflation patterns in those countries, to infer the degree of policymakers' inflation variability aversion. Our results suggest that both countries that introduced inflation targeting, and non-targeting European Union countries approaching monetary union, increased their revealed aversion to inflation variability, and likely suffered most increases in output volatility as a result.

Date: 2000-04
New Economics Papers: this item is included in nep-ifn, nep-mon and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (32)

Downloads: (external link)
https://www.bcentral.cl/documents/33528/133326/DTBC_69.pdf (application/pdf)

Related works:
Chapter: Does Inflation Targeting Increase Output Volatility?: An International Comparison of Policymakers' Preferences and Outcomes (2002)
Working Paper: Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes (1999)
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:chb:bcchwp:69

Access Statistics for this paper

More papers in Working Papers Central Bank of Chile from Central Bank of Chile Contact information at EDIRC.
Bibliographic data for series maintained by Alvaro Castillo ().