Does Inflation Targeting Really Make a Difference? Evaluating the Treatment Effect of Inflation Targeting in Seven Industrial Countries

Posted: 7 Jan 2014

See all articles by Shu Lin

Shu Lin

Department of Economics, The Chinese University of Hong Kong

Haichun Ye

Shanghai University of Finance and Economics - School of Economics

Date Written: July 4, 2006

Abstract

We evaluate the treatment effect of inflation targeting in seven industrial countries that adopted this policy in the 1990s. To address the self-selection problem of policy adoption, we make use of a variety of propensity score matching methods recently developed in the treatment effect literature. Our results show that inflation targeting has no significant effects on either inflation or inflation variability in these seven countries. Further evidence from long-term nominal interest rates and income velocity of money also supports the window-dressing view of inflation targeting.

Keywords: Inflation targeting; Inflation; Propensity score matching

JEL Classification: E4; E5

Suggested Citation

Lin, Shu and Ye, Haichun, Does Inflation Targeting Really Make a Difference? Evaluating the Treatment Effect of Inflation Targeting in Seven Industrial Countries (July 4, 2006). Journal of Monetary Economics, Vol. 54, No. 8, 2007, Available at SSRN: https://ssrn.com/abstract=2375544

Shu Lin

Department of Economics, The Chinese University of Hong Kong ( email )

Department of Economics
The Chinese University of Hong Kong
Shatin, N.T., 200433
Hong Kong

Haichun Ye (Contact Author)

Shanghai University of Finance and Economics - School of Economics ( email )

111 Wuchuan Road
Shanghai, 200434
China

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