Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions

Vito Muscatelli, Patrizio Tirelli and Carmine Trecroci

No 20, Working Papers from University of Milano-Bicocca, Department of Economics

Abstract: We estimate forward-looking interest-rate reaction functions for the G3 economies and for a group of countries which recently adopted inflation targets for the period 1975-97. We employ alternative measures for expected inflation and the output gap compared to the existing literature and estimate our models using recursive methods. Very few significant shifts in the responsiveness of monetary instruments are detected in the G3 countries, but significant differences emerge between these economies in the behaviour of the monetary authorities. In addition, the formal introduction of inflation targeting in countries like the UK, Sweden, Canada and New Zealand post-dates changes in the way in which central banks react to the objectives of economic policy.

Pages: 50 pages
Date: 1998-03, Revised 1998-10
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Institutional Change, Inflation Targeting and the Stability of Interest Rate Reaction Functions (1998)
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