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Expectations Anchoring in Inflation Targeting Regimes

Oleg Korenok and Stanislav Radchenko ()

No 503, Working Papers from VCU School of Business, Department of Economics

Abstract: Central banks adopt an inflation targeting policy with a goal to anchor inflation expectations. We argue that the expectations anchoring test developed in the context of the Krugman (1991) exchange rate targeting model is well-suited for inflation targeting applications. The test quantifies nonlinearity between realized and expected inflation for very high and very low inflation levels. It does not require comparison with the control group of non-targeting countries, avoiding critique of the benchmark approach. We test inflation targeting in Australia, Canada, New Zealand, Sweden, the United Kingdom and find weak support for expectations anchoring.

Keywords: monetary policy; inflation; exchange rate; target zone model; expectations anchoring (search for similar items in EconPapers)
JEL-codes: E31 E52 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2005-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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