Inflation Targeting and the Unemployment-Inflation Trade-off

Chorng-Huey Wong, Eric Clifton and Gene Leon

No 2001/166, IMF Working Papers from International Monetary Fund

Abstract: This paper examines the impact of the introduction of inflation targeting on the unemployment-inflation trade-off in OECD countries. Theoretical models suggest that the credibility-enhancing effects of the adoption of inflation targeting should cause an improvement in the unemployment-inflation trade-off, i.e., that reducing inflation by a given amount should occur with a smaller rise in unemployment. The empirical evidence examined for OECD countries adopting inflation targeting supports this hypothesis. Using a smooth transition regression model, it is shown that the improvement in this trade-off does not take place immediately after the adoption of inflation targeting; rather, it improves over time as the credibility of the central bank is established.

Keywords: WP; IT country; inflation targeting; credibility; monetary policy; Phillips curve; smooth transition regression models; unemployment-inflation trade-off; inflation expectation; unemployment-inflation relationship; output-inflation trade-off; Inflation; Unemployment; Unemployment rate; Disinflation (search for similar items in EconPapers)
Pages: 43
Date: 2001-10-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (33)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=15416 (application/pdf)

Related works:
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:imf:imfwpa:2001/166

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().