The price stability under inflation targeting regime: An analysis with a new intermediate approach

Zied Ftiti () and Walid Hichri

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Abstract: This paper analyzes the relevance of the inflation targeting (IT) policy in achieving its primary goal of medium-term price stability. Contrary to previous studies, we propose, in this work, a new approach; an intermediate approach that consists in conducting a time-series analysis (employed in the literature under unilateral cases-absolute approach) with a comparison of inflation performance of IT countries and those of non-IT countries (comparison made in literature under the relative approach). Empirically, we employ a frequency analysis based on evolutionary spectral theory of Priestley (1965-1996) in order to distinguish between different inflation horizons: short-run and the medium-run inflation rates. To check the stability of spectral density functions for inflation series for each country under studied frequencies, we apply a Bai and Perron (2003a,b) test. Our results show that after IT framework implementation, there is no break point in inflation series in short and medium terms. This result is not verified for non-IT countries. Therefore. IT is more relevant in achieving price stability and consequently more effective on inflation expectation anchoring than other monetary policies.

Keywords: Inflation targeting; Inflation stability; Structural change; Evolutionary spectral analysis; Intermediate approach; Pre-requisite (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (18)

Published in Economic Modelling, 2014, 38, pp.23-32. ⟨10.1016/j.econmod.2013.11.033⟩

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Related works:
Journal Article: The price stability under inflation targeting regime: An analysis with a new intermediate approach (2014)
Working Paper: The Price Stability Under Inflation Targeting Regime: An Analysis With a New Intermediate Approach (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00958660

DOI: 10.1016/j.econmod.2013.11.033

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