We utilize a stochastic volatility model to analyse the possible effects of inflation targeting on the trade-off between output gap variability and inflation variability. We find that the adoption of inflation targets (in New Zealand, Australia, Canada, the UK, Sweden and Finland) might result in a more favourable monetary policy trade-off (except in Australia and Finland). This conclusion is reached by comparing, first, the economic performance of targeting countries in the 1980s and the 1990s; and second, the economic performance in the 1990s of targeting and non-targeting countries (the USA, Japan, Switzerland, Germany, France and the Netherlands). We focus on two possible explanations for the performance of the inflation-targeting regime: the relatively high degree of monetary policy transparency, and the presence of a flexible institutional framework.

Does Inflation Targeting Affect the Trade-Off between Output Gap and Inflation Variability? / Arestis, P; Caporale, G; Cipollini, Andrea. - In: MANCHESTER SCHOOL. - ISSN 1463-6786. - STAMPA. - 70:4(2002), pp. 528-545. [10.1111/1467-9957.00299]

Does Inflation Targeting Affect the Trade-Off between Output Gap and Inflation Variability?

CIPOLLINI, Andrea
2002

Abstract

We utilize a stochastic volatility model to analyse the possible effects of inflation targeting on the trade-off between output gap variability and inflation variability. We find that the adoption of inflation targets (in New Zealand, Australia, Canada, the UK, Sweden and Finland) might result in a more favourable monetary policy trade-off (except in Australia and Finland). This conclusion is reached by comparing, first, the economic performance of targeting countries in the 1980s and the 1990s; and second, the economic performance in the 1990s of targeting and non-targeting countries (the USA, Japan, Switzerland, Germany, France and the Netherlands). We focus on two possible explanations for the performance of the inflation-targeting regime: the relatively high degree of monetary policy transparency, and the presence of a flexible institutional framework.
2002
70
4
528
545
Does Inflation Targeting Affect the Trade-Off between Output Gap and Inflation Variability? / Arestis, P; Caporale, G; Cipollini, Andrea. - In: MANCHESTER SCHOOL. - ISSN 1463-6786. - STAMPA. - 70:4(2002), pp. 528-545. [10.1111/1467-9957.00299]
Arestis, P; Caporale, G; Cipollini, Andrea
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11380/618807
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