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Expectations Anchoring in Inflation Targeting Regimes

Author

Listed:
  • Oleg Korenok

    (Department of Economics, VCU School of Business)

  • Stanislav Radchenko

    (Department of Economics, University of North Carolina at Charlotte)

Abstract

Central banks adopt an inflation targeting policy with a goal to anchor inflation expectations. We argue that the expectations anchoring test developed in the context of the Krugman (1991) exchange rate targeting model is well-suited for inflation targeting applications. The test quantifies nonlinearity between realized and expected inflation for very high and very low inflation levels. It does not require comparison with the control group of non-targeting countries, avoiding critique of the benchmark approach. We test inflation targeting in Australia, Canada, New Zealand, Sweden, the United Kingdom and find weak support for expectations anchoring.

Suggested Citation

  • Oleg Korenok & Stanislav Radchenko, 2005. "Expectations Anchoring in Inflation Targeting Regimes," Working Papers 0503, VCU School of Business, Department of Economics.
    • Handle: RePEc:vcu:wpaper:0503
    as

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    File URL: http://www.people.vcu.edu/~okorenok/inflationTZ.pdf
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    References listed on IDEAS

    as
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    2. Catherine S. Forbes & Paul Kofman, 2000. "Bayesian Target Zones," Research Paper Series 32, Quantitative Finance Research Centre, University of Technology, Sydney.
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    More about this item

    Keywords

    monetary policy; inflation; exchange rate; target zone model; expectations anchoring;
    All these keywords.

    JEL classification:

    • 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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