Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes / Stephen G. Cecchetti, Michael Ehrmann.

Format:

Book

Author/Creator:

Cecchetti, Stephen G.

Contributor:

National Bureau of Economic Research.

Ehrmann, Michael.

Series:

Working Paper Series (National Bureau of Economic Research) no. w7426.

NBER working paper series no. w7426

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 1999.

Summary:

Aggregate shocks that move output and inflation in opposite directions create a tradeoff between output and inflation variability, forcing central bankers to make a choice. Differences in the degree of accommodation of shocks lead to disparate variability outcomes, revealing national central banker's relative weight on output and inflation variability in their preferences. We use estimates of the structure of 23 industrialized and developing economies, including nine that target inflation explicitly, together with the realized output and inflation patterns in those countries, to infer the degree of policymakers' inflation variability aversion. Our results suggest that both countries that introduced inflation targeting, and non-targeting European Union countries approaching monetary union, increased their revealed aversion to inflation variability, and likely suffered most increases in output volatility as a result.

Notes:

Print version record

December 1999.