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Effects of Adopting Inflation Targeting Regimes on Inflation Variability

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  • Hakan Berument
  • Ebru Yuksel

Abstract

This paper investigates whether inflation-targeting programs have altered the pattern of inflation and its variability for five developed countries and four emerging economies implementing inflation-targeting programs. A GARCH specification is used to model inflation variability, which accounts for public perception of the future levels of inflation variability—conditional variance. We could not find lower conditional inflation expectations except for Australia, Chile and Sweden under various specifications. Moreover, the conditional variance decreases only for Chile and the UK. Therefore, the empirical support for the lower inflation and its variability for the inflation targeting regimes is limited.
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Suggested Citation

  • Hakan Berument & Ebru Yuksel, 2007. "Effects of Adopting Inflation Targeting Regimes on Inflation Variability," Working Papers 0702, Department of Economics, Bilkent University.
    • Handle: RePEc:bil:wpaper:0702
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    References listed on IDEAS

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    Cited by:

    1. Goran Petrevski, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," Papers 2305.17474, arXiv.org.
    2. Ivrendi, Mehmet & Guloglu, Bulent, 2010. "Monetary shocks, exchange rates and trade balances: Evidence from inflation targeting countries," Economic Modelling, Elsevier, vol. 27(5), pages 1144-1155, September.
    3. James Payne, 2009. "Inflation targeting and the inflation-inflation uncertainty relationship: evidence from Thailand," Applied Economics Letters, Taylor & Francis Journals, vol. 16(3), pages 233-238.
    4. Naqvi, Bushra & Rizvi, Syed Kumail Abbas, 2009. "Inflation Targeting Framework: Is the story different for Asian Economies?," MPRA Paper 19546, University Library of Munich, Germany.
    5. Harold Glenn A. Valera & Mark J. Holmes & Gazi M. Hassan, 2018. "Is inflation targeting credible in Asia? A panel GARCH approach," Empirical Economics, Springer, vol. 54(2), pages 523-546, March.
    6. Lahmiri, Salim, 2017. "Asymmetric and persistent responses in price volatility of fertilizers through stable and unstable periods," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 466(C), pages 405-414.
    7. Binner, J.M. & Tino, P. & Tepper, J. & Anderson, R. & Jones, B. & Kendall, G., 2010. "Does money matter in inflation forecasting?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(21), pages 4793-4808.
    8. James Payne, 2009. "Official dollarization in El Salvador and the inflation-inflation uncertainty nexus," Applied Economics Letters, Taylor & Francis Journals, vol. 16(12), pages 1195-1199.

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