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Inflation Targeting and Inflation Persistence in Asia-Pacific

Stefan Gerlach () and Peter Tillmann

No 252011, Working Papers from Hong Kong Institute for Monetary Research

Abstract: Following the Asian financial crisis in 1997-98, a number of Asian central banks adopted inflation targeting. While it is possible for the average inflation rate to be close to target, deviations of inflation could nevertheless be large and protracted. We therefore explore how successful this framework has been by looking at the persistence of inflation, as measured by the sum of the coefficients in an autoregressive model for inflation, using a median unbiased estimator and bootstrapped confidence bands. We find a significant reduction in inflation persistence following the adoption of inflation targeting. The speed by which persistence falls varies across countries. Interestingly, the economies not adopting inflation targeting do not show a decline in persistence. Measuring the performance of monetary policy strategies in terms of inflation persistence rather than the level of inflation shows that inflation targeting performs better than alternative strategies.

Keywords: Inflation Targeting; Asia; Inflation Persistence; Monetary Policy Strategy (search for similar items in EconPapers)
JEL-codes: C22 E31 E5 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2011-08
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-sea
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Journal Article: Inflation targeting and inflation persistence in Asia–Pacific (2012) Downloads
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