Effects of adopting inflation targeting regimes on inflation variability

Date
2007
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Source Title
Physica A : Statistical Mechanics and its Applications
Print ISSN
0378-4371
Electronic ISSN
1873-2119
Publisher
Elsevier BV
Volume
375
Issue
1
Pages
265 - 273
Language
English
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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. © 2006 Elsevier B.V. All rights reserved.

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