Inflation Targeting and Inflation Behavior: A Successful Story?

International Journal of Central Banking, Vol. 1, No. 3, pp. 153-175, 2005

18 Pages Posted: 15 Feb 2005

See all articles by Marco Vega

Marco Vega

Central Bank of Peru

Diego Winkelried

University of Cambridge - Faculty of Economics and Politics; Central Reserve Bank of Peru

Abstract

This paper estimates the effects of inflation targeting (IT) adoption over inflation dynamics using a wide control group. We contribute to the current IT evaluation literature by considering the adoption of IT by a country as a treatment, just as in the program evaluation literature. Hence, we perform propensity score matching to determine suitable counterfactuals to the actual inflation targeters. With this approach we find that IT has helped in reducing the level and volatility of inflation in the countries that adopted it. This result is robust to alternative definitions of treatment and control groups. We also find that the effect of IT in the persistence of inflation is rather weak and not as categorical as the one associated with the mean and volatility of inflation.

Keywords: Inflation targeting, matching methods

JEL Classification: C50, E42, E52

Suggested Citation

Vega, Marco and Winkelried, Diego, Inflation Targeting and Inflation Behavior: A Successful Story?. International Journal of Central Banking, Vol. 1, No. 3, pp. 153-175, 2005. Available at SSRN: https://ssrn.com/abstract=667521

Marco Vega

Central Bank of Peru ( email )

Research Division
Jiron Miroquesada 441
Lima, Lima 1
Peru
++511 6132042 (Phone)
++511 428 8113 (Fax)

HOME PAGE: www.bcrp.gob.pe

Diego Winkelried (Contact Author)

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Central Reserve Bank of Peru ( email )

Miroquesada 411
Lima
Peru

Register to save articles to
your library

Register

Paper statistics

Downloads
583
rank
43,399
Abstract Views
3,346
PlumX Metrics