Document Type
Article
Publication Date
1-1-2011
Publication Title
Southern Economic Journal
Abstract
This article studies the effects of inflation targeting (IT) on relative price variability (RPV) using a data set of twenty countries comprising both targeters and nontargeters. We find that a decline in mean inflation after IT adoption is not necessarily associated with a similar fall in RPV and that what matters most for the structural changes in RPV is the initial inflation regime prior to the adoption of IT rather than IT adoption itself. IT adoption impacts the shape of the underlying relationship between inflation and RPV in countries with initially high inflation rates, moving it from monotonie to the U-shaped profile observed consistently for countries with low-inflation regimes. The minimum point of this U-shaped curve is indicative of the public's expectations of inflation and is very close to the announced target for inflation in most of the countries we study.
Volume
77
Issue
4
First Page
934
Last Page
957
DOI
10.4284/0038-4038-77.4.934
ISSN
00384038
Recommended Citation
Choi, Chi Young; Kim, Young Se; and O'Sullivan, Róisín, "Inflation Targeting and Relative Price Variability: What Difference Does Inflation Targeting Make?" (2011). Economics: Faculty Publications, Smith College, Northampton, MA.
https://scholarworks.smith.edu/eco_facpubs/61
Comments
Peer reviewed accepted manuscript.