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Shaken, not Stirred: Comparing the Effectiveness of Pure and Hybrid Inflation Targeting

Author

Listed:
  • Philipp Kartaev

    (Lomonosov Moscow State University)

  • Irina Luneva

    (Lomonosov Moscow State University)

Abstract

The study explores how the choice between pure and mixed (hybrid) inflation targeting affects the likelihood of achieving the announced inflation target achievement. Pure inflation targeting is deemed to be a regime under which inflation is the only variable in a central bank's objective function, while hybrid targeting is an alternative regime, which, in addition to inflation, includes the exchange rate in monetary authorities' objective function. Modeling is conducted on panel data of 32 inflation targeting countries. The cluster analysis method is applied to classify countries with respect to the regime used: pure or hybrid. Then a binary choice model of the probability of achieving the inflation target is estimated. The use of the hybrid option of inflation targeting is found to be associated with the increase in this probability, suggesting a higher effectiveness of this regime versus pure inflation targeting.

Suggested Citation

  • Philipp Kartaev & Irina Luneva, 2018. "Shaken, not Stirred: Comparing the Effectiveness of Pure and Hybrid Inflation Targeting," Russian Journal of Money and Finance, Bank of Russia, vol. 77(3), pages 65-75, September.
    • Handle: RePEc:bkr:journl:v:77:y:2018:i:3:p:65-75
    DOI: 10.31477/rjmf.201803.65
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    Citations

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    Cited by:

    1. Victoria P. Litvinets, 2023. "Inflation Targeting and Economic Growth in Developed and Developing Countries: Evaluation of the Policy Effectiveness Using CS-ARDL Approach," Journal of Applied Economic Research, Graduate School of Economics and Management, Ural Federal University, vol. 22(4), pages 814-833.
    2. Grebenkina, A. & Khandruev, A., 2021. "Difference in intensity of exchange rate factors in countries with targeting inflation regime," Journal of the New Economic Association, New Economic Association, vol. 51(3), pages 125-143.

    More about this item

    Keywords

    exchange rate; pass-through effect; output; inflation targeting; panel data;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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