Inflation targeting and interest rates

Matteo Lanzafame and Reginaldo Nogueira

MPRA Paper from University Library of Munich, Germany

Abstract: Inflation Targeting (IT) can be expected to play a role in structurally reducing nominal interest rates, by lowering a country’s inflation expectations and risk premium. Relying on a panel of 52 advanced and emerging economies over the 1975-2009 years, we carry out a formal investigation of this hypothesis. Our econometric strategy adopts a flexible and efficient panel estimation framework, controlling for a number of issues usually neglected in the literature, such as parameter heterogeneity and cross-section dependence. Our findings are supportive of the optimistic view on IT, indicating that adoption of this monetary regime leads to lower nominal interest rates.

Keywords: Inflation targeting; Interest rates; panel data; multifactor modeling. (search for similar items in EconPapers)
JEL-codes: E40 E52 E58 (search for similar items in EconPapers)
Date: 2013-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:46153

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