Does Inflation Targeting Matter ? An Experimental Investigation

Camille Cornand and Cheick Kader M’Baye ()
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Cheick Kader M’Baye: Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France

No 1330, Working Papers from Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon

Abstract: We use laboratory experiments with human subjects to test the relevance of different inflation targeting regimes. In particular and within the standard New Keynesian model, we evaluate to what extent communication of the inflation target is relevant to the success of inflation targeting. We find that if the central bank only cares about inflation stabilization, announcing the inflation target does not make a di-fference in terms of macroeconomic performances compared to a standard active monetary policy. However, if the central bank also cares about the stabilization of the economic activity, communicating the target helps to reduce the volatility of inflation, interest rate, and output gap although their average levels are not affected. This finding is consistent with those of the theoretical literature and provides a rationale for the adoption of a flexible inflation targeting regime.

Keywords: Inflation targeting; inflation expectations; monetary policy; New Keynesian model; laboratory experiments (search for similar items in EconPapers)
JEL-codes: D82 D83 E52 E58 (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cba, nep-exp, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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ftp://ftp.gate.cnrs.fr/RePEc/2013/1330.pdf (application/pdf)

Related works:
Journal Article: DOES INFLATION TARGETING MATTER? AN EXPERIMENTAL INVESTIGATION (2018)
Working Paper: Does inflation targeting matter? An experimental investigation (2018)
Working Paper: Does Inflation Targeting Matter ? An Experimental Investigation (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:gat:wpaper:1330

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