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Do quantitative monetary targets matter?

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  • Lin, Hsin-Yi

Abstract

This paper evaluates the effects of monetary policy directed at inflation across different levels using panel data quantile regression and instrumental variable quantile regression methods. We identify a heterogeneous and nonlinear relationship between an explicit quantitative goal for monetary policy and inflation after controlling for the problem of possible endogeneity. We also find that both having and successfully hitting quantitative targets is more effective for monetary policy in lowering inflation in high-inflation episodes than in low-inflation episodes. When countries suffer from severe inflation problems, the adoption of quantitative goals for monetary policies can thus deliver important economic gains. Conversely, the adoption of quantitative goals may not result in a lowering of inflation when countries are more economically sound.

Suggested Citation

  • Lin, Hsin-Yi, 2016. "Do quantitative monetary targets matter?," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 415-428.
    • Handle: RePEc:eee:reveco:v:43:y:2016:i:c:p:415-428
    DOI: 10.1016/j.iref.2016.01.005
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    More about this item

    Keywords

    Endogeneity; Quantile regression; Panel data; Exchange rate target; Inflation target; Money growth target;
    All these keywords.

    JEL classification:

    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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