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In fl ation Targeting and Relative Price Variability : What Di ff erence Does In fl ation Targeting Make ?
| Content Provider | Semantic Scholar |
|---|---|
| Author | Choi, Chi-Young |
| Copyright Year | 2010 |
| Abstract | This paper studies the effects of inflation targeting (IT) on relative price variability (RPV) using a data set of 20 countries comprising both targeters and nontargeters. We find that a decline in mean inflation after IT adoption is not necessarily associated with a similar fall in RPV, despite the well-established empirical evidence on the positive relationship between inflation and RPV. Our results indicate that what matters most for the structural changes in RPV is the initial inflation regime prior to the adoption of IT rather than IT adoption itself. Once structural shifts in inflation are accounted for, our regression analysis reveals a tighter link between inflation and RPV after IT adoption, as shocks to inflation of the same size lead to a larger dispersion of relative prices. We also find that IT adoption impacts the shape of the underlying relationship between inflation and RPV in countries with initially high inflation rates, moving it from monotonic to the U-shaped profile observed for countries with low inflation regimes. The minimum point of this U-shape curve is indicative of the public's expectations of inflation and is very close to the announced target for inflation in most of the countries we study. |
| File Format | PDF HTM / HTML |
| Alternate Webpage(s) | http://economics.uta.edu/facpages/cychoi/research/SEJ(2011).pdf |
| Alternate Webpage(s) | http://econ.ccu.edu.tw/manage/1275898344_a.pdf |
| Alternate Webpage(s) | http://www.cas.unt.edu/~kim1/Research/IT_CKO_10.pdf |
| Language | English |
| Access Restriction | Open |
| Content Type | Text |
| Resource Type | Article |
