Do inflation targeting regimes reduce inflation uncertainty? : evidence from five industrilized and five emerging countries
Author(s)
Advisor
Özlale, ÜmitDate
2004Publisher
Bilkent University
Language
English
Type
ThesisItem Usage Stats
147
views
views
27
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downloads
Abstract
In this thesis, using a time-varying parameter model with GARCH specification, it was
investigated whether there is a structural break in expected inflation and two types of inflation
uncertainties –structural and impulse uncertainty- for five industrialized and five emerging
countries after the implementation of inflation targeting. Many industrialized and emerging
countries attempted to stabilize their price levels with the help of a monetary discipline
satisfied by the features of inflation targeting. These regimes are thought to lower the
uncertainties regarding inflation dynamics. This methodology allows decomposing two types
of uncertainties and it was claimed that successful implementation of inflation targeting
removes these uncertainties. Two types of tests were employed to detect this claim: A simple
non-parametric test which examine whether the changes in the mean and the variance of
expected inflation along with two types of inflation uncertainty are statistically significant;
and a parametric test whether there has been a shift in mean or a shift in the trend for expected
inflation and two types of uncertainties.
Both non-parametric and parametric test results indicate that the inflation targeting
regimes are particularly successful in reducing expected inflation while there is less evidence
that implementation of inflation targeting reduce inflation uncertainty.
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