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Testing credibility with time-varying coefficients

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  • Reginaldo Pinto Nogueira

Abstract

The article presents evidence on credibility gains from the adoption of Inflation Targeting (IT), for a set of developed and emerging markets. We carry out our analysis for Brazil, Mexico, Sweden and the UK, and ask whether the adoption of this monetary framework strengths monetary policy credibility. To answer this question we apply a time-varying coefficients methodology to estimate the time path of the trade-off between inflation and output. Following the literature a more favourable trade-off is believed to be linked to improvements in monetary policy credibility. The results show a clear picture of credibility gains from the adoption of IT.

Suggested Citation

  • Reginaldo Pinto Nogueira, 2009. "Testing credibility with time-varying coefficients," Applied Economics Letters, Taylor & Francis Journals, vol. 16(18), pages 1813-1817.
    • Handle: RePEc:taf:apeclt:v:16:y:2009:i:18:p:1813-1817
    DOI: 10.1080/13504850701719611
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    References listed on IDEAS

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    1. W. Wascher & Palle S. Andersen, 1999. "Sacrifice ratios and the conduct of monetary policy in conditions of low inflation," BIS Working Papers 82, Bank for International Settlements.
    2. Mr. Chorng-Huey Wong & Mr. Eric V. Clifton & Mr. Gene L. Leon, 2001. "Inflation Targeting and the Unemployment-Inflation Trade-off," IMF Working Papers 2001/166, International Monetary Fund.
    3. Barry Eichengreen, 2006. "Can Emerging Markets Float? Should They Inflation Target?," Chapters, in: Matías Vernengo (ed.), Monetary Integration and Dollarization, chapter 8, Edward Elgar Publishing.
    4. Schlicht, Ekkehart & Ludsteck, Johannes, 2006. "Variance Estimation in a Random Coefficients Model," IZA Discussion Papers 2031, Institute of Labor Economics (IZA).
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    Cited by:

    1. Andrew Powell & Rodrigo Mariscal & Pilar Tavella, 2018. "On the Credibility of Inflation-Targeting Regimes in Latin America," Economía Journal, The Latin American and Caribbean Economic Association - LACEA, vol. 0(Spring 20), pages 1-24, May.
    2. Schlicht, Ekkehart, 2006. "VC - A Method For Estimating Time-Varying Coefficients in Linear Models," Discussion Papers in Economics 61656, University of Munich, Department of Economics.
    3. Rodrigo Mariscal & Andrew Powell & Pilar Tavella, 2014. "On the Credibility of Inflation Targeting Regimes in Latin America," IDB Publications (Working Papers) 86253, Inter-American Development Bank.

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