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The impact of monetary strategies on inflation persistence

Evžen Kočenda () and Balazs Varga ()
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Balazs Varga: Corvinus University of Budapest

No 938, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: We analyze the impact of price stability-oriented monetary strategies (inflation targeting - IT - and constraining exchange rate arrangements) on inflation persistence using a timevarying coefficients framework in a panel of 68 countries (1993-2013). We show that explicit IT has a stronger effect on taming inflation persistence than implicit IT and is effective even during and after the financial crisis. Regimes with the U.S. dollar as a reserve currency are less effective than those using the Euro; this effect correlates with the level of the reserve currency's inflation persistence. Further, we document the existence of structure in inflation persistence data. Our results are robust to differences in four well established inflation persistence measures and are not affected by existing structural breaks or the endogeneity of monetary strategies.

Keywords: Inflation persistence; inflation targeting; exchange rate regime; flexible least squares; structural breaks (search for similar items in EconPapers)
JEL-codes: C22 C32 E31 E52 F31 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2016-04
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Working Paper: The Impact of Monetary Strategies on Inflation Persistence (2017) Downloads
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