Assessing Inflation Targeting after a Decade of World Experience

International Journal of Economics and Finance, 6(4): 343-68, 2001

Posted: 4 Oct 2017

See all articles by Vittorio Corbo

Vittorio Corbo

Pontificia Universidad Catolica de Chile

Oscar Landerretche

University of Chile

Klaus Schmidt-Hebbel

Pontifical Catholic University of Chile

Date Written: October 1, 2001

Abstract

Ten years of inflation targeting worldwide provide valuable lessons. Inflation targeters (Iters) have been very successful in meeting their inflation targets (Its). Industrial output sacrifice during inflation stabilization and industrial output volatility has frequently been lowered after IT adoption. ITers have consistently reduced inflation forecast errors after IT adoption. The influence of price and output shocks on the behaviour of inflation and output gaps has changed much more strongly among ITers than in non-targeting industrial countries in the course of the 1990s. IT has played a role in strengthening the effect of forward-looking expectations on inflation, hence weakening the weight of past inflation inertia. Central bankers' aversion to inflation is, on average, not different among ITers in comparison to NITers but has risen in emerging-country ITers. ITers have gradually reaped a credibility gain, allowing them to achieve their targets with smaller changes in interest rates in the late 1990s than the changes that were required in the early 1990s.

Keywords: Inflation targeting; monetary policy; Latin America

JEL Classification: E52; E58

Suggested Citation

Corbo, Vittorio and Landerretche, Oscar and Schmidt-Hebbel, Klaus, Assessing Inflation Targeting after a Decade of World Experience (October 1, 2001). International Journal of Economics and Finance, 6(4): 343-68, 2001. Available at SSRN: https://ssrn.com/abstract=3041378

Vittorio Corbo

Pontificia Universidad Catolica de Chile ( email )

Av Libertador General Bernardo O'Higgins 340
Santiago, Región Metropolitana 8331150
Chile

HOME PAGE: http://www.faceapuc.cl/personal/vcorbo/

Oscar Landerretche

University of Chile ( email )

Pío Nono Nº1, Providencia
Santiago, R. Metropolitana 7520421
Chile

Klaus Schmidt-Hebbel (Contact Author)

Pontifical Catholic University of Chile ( email )

Av. Vicuna Mackenna 4860
Santiago
Chile

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