11/2017 Theologos Dergiades, Costas Milas and Theodore Panagiotidis. An assessment of the inflation targeting experience

Working Papers of Eesti Pank 11/2017

An effective inflation targeting (IT) regime assumes both a change in the stationarity properties of inflation and a lower variability. Within a framework that does not make a priori assumptions about the order of integration, we examine whether there is a change in the inflation persistence in forty-five, developed and developing, countries and in three groups of countries, the G7, the OECD, and OECD Europe. For the inflation targeters, we find that the endogenously identified break dates are not consistent with the formal adoption of the IT regime. We employ a test for the variability of inflation that tracks how frequently inflation variability is in control. Logit analysis reveals that inflation targeters do not experience a greater probability than non-inflation targeters of inflation persistence changing, and they are not more in control of their inflation variability. The quality of institutions emerges as being more significant for taming inflation.

JEL Codes: C12, E4, E5

Keywords: structural change, persistence change, inflation targeting

Corresponding author’s e-mail address: costas.milas [at] liverpool.ac.uk

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The views expressed are those of the authors and do not necessarily represent the official views of Eesti Pank or the Eurosystem.