An Investigation of Output Variance Before and During Inflation Targeting

Francisco Nadal De Simone

No 2001/215, IMF Working Papers from International Monetary Fund

Abstract: Since Taylor estimated a trade-off between inflation and output variance, it has been widely accepted that efforts to keep the inflation rate “too low and stable” will likely result in relatively larger output fluctuations. Following the generalized reduction in inflation variance in the 1990s, that concern was rekindled. This study estimates whether conditional output variance has changed in a sample of 12 countries. With the possible exception of Canada, there is no evidence of an increase in output variance. Either output variance has not changed (i.e., in Korea and Singapore) or has fallen (i.e., in Australia and New Zealand).

Keywords: WP; output variance; inflation targeting; Markov-switching; inflation variance; output trade-off; output variance trade-off; inflation targeting framework; inflation-targeting regime; Inflation; Business cycles; Potential output; Monetary policy frameworks; Australia and New Zealand (search for similar items in EconPapers)
Pages: 27
Date: 2001-12-01
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Citations: View citations in EconPapers (12)

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