INFLATION TARGETING IN PRACTICE: FURTHER EVIDENCE

Jim Lee

23 citations0/0 files storedContemporary Economic Policy

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Monetary Policy and Economic Impact Global Financial Crisis and Policies Market Dynamics and Volatility

Abstract

This paper empirically investigates the plausibility, which has been argued but not fully established, that the efficacy of the inflation‐targeting strategy recently implemented by New Zealand, Canada, and the U.K. has been an artifact of a global disinflationary environment. A data decomposition procedure, which involves cointegration and canonical correlation analysis, is used to remove common trend and cyclical components from historical data that these three countries share with their nontargeting neighboring countries, namely, Australia, the U.S., and Germany, respectively. Simulations based on resulting country‐specific data for inflation and other economic aggregates reveal scant evidence of regime‐shift effects as exhibited in observed data. This contrast in findings highlights the extent to which cross‐country synchronization in economic activity has on the performance of small open economies. (JEL C32, E52, E58)

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References

1988Statistical analysis of cointegration vectors 1990MAXIMUM LIKELIHOOD ESTIMATION AND INFERENCE ON COINTEGRATION — WITH APPLICATIONS TO THE DEMAND FOR MONEY 1989The Great Crash, the Oil Price Shock, and the Unit Root Hypothesis 2002Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis 1990Statistical Inference in Instrumental Variables Regression with I(1) Processes 1993Tests for Parameter Instability and Structural Change With Unknown Change Point 1992A Note with Quantiles of the Asymptotic Distribution of the Maximum Likelihood Cointegration Rank Test Statistics1 1992Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis

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2014The price stability under inflation targeting regime: An analysis with a new intermediate approach 2016How credible is inflation targeting in Asia? A quantile unit root perspective 2001An Investigation of Output Variance Before and During Inflation Targeting 2006Do Inflation Targeters Outperform Non-Targeters?2001INFLATION TARGETERS IN PRACTICE: A LUCKY LOT?

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