Inflation targeting as a shock absorber

Fratzscher, Marcel; Steffen, Christoph Große; Rieth, Malte

doi:10.1016/j.jinteco.2020.103308

Cited by 40 publications

(23 citation statements)

References 63 publications

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“…The usual transmission mechanism cited in the literature works through inflation expectations (Ball and Sheridan, 2004;Vega and Winkelried, 2005;Gürkaynak et al, 2007;Batini and Laxton, 2007;Svensson, 2009;Lin and Ye, 2009;Miao, 2009;Walsh, 2009;Revenna, 2010;Ball, 2011;Tillmann, 6 For studies that propose a similar idea without a formal hypothesis test, see Mishkin and Posen (1997), Corbo et al (2002), andBernanke et al, (2018). Fratzscher et al (2020) find that economies with IT regimes show lower inflation rates after a large natural disaster compared with economies with alternative monetary regimes. Angeriz and Arestis (2008) provide empirical evidence that suggests that both ITCBs and (two) non-ITCBs are equally successful in locking in low inflation rates using intervention analysis to multivariate structural time series models.…”

Section: Hypothesis and Theoretical Frameworkmentioning

confidence: 85%

Just Do IT? An Assessment of Inflation Targeting in a Global Comparative Case Study

Duncan¹,

Martínez‐García²,

Toledo³

2022

gwp

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This paper proposes new measures of the effectiveness of inflation targeting (IT) and evaluates its main drivers in a (large) sample of advanced economies (AEs) and emerging market and developing economies (EMDEs). Using synthetic control methods, we find that IT has heterogeneous effects on inflation across countries. The gains shifting the level of inflation (generally downwards) are modest and smaller in AEs than are those in EMDEs. All such gains are statistically significant in one out of three economies approximately. Second, statistically significant differences in keeping inflation close to target under IT (compared with estimated counterfactuals) can be detected more broadly in nearly half of the economies. Third, IT can be a source of economic resilience that helped cushion inflation fluctuations during the 2007-09 Global Financial Crisis with statistically significant gains mostly found among EMDEs (in two out of three of these economies). Finally, we find that IT effectiveness-measured by the dynamic treatment effect and the absolute deviations of both observed and synthetic inflation from target-is significantly correlated with indices of exchange rate stability and monetary policy independence, especially among EMDEs.

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Section: Hypothesis and Theoretical Frameworkmentioning

confidence: 85%

Just Do IT? An Assessment of Inflation Targeting in a Global Comparative Case Study

Duncan¹,

Martínez‐García²,

Toledo³

2022

gwp

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“…We follow the literature on the macroeconomic effects of natural disasters (Noy, 2009;Noy and Nualsri, 2011;Parker, 2018 andFratzscher et al, 2020) and use the reported estimated damage as our disaster variable. This measure captures the direct damage to crops, property and livestock, measured in US dollars and valued at the moment of the event.…”

Section: Datamentioning

confidence: 99%

“…This measure captures the direct damage to crops, property and livestock, measured in US dollars and valued at the moment of the event. As the effects of the disasters on inflation depend on the size of the disaster and to standardise across countries, we follow Fratzscher et al (2020) and divide the estimated damage by the level of monthly current-price GDP in the affected country, 12 months prior to the event. In consequence, our disaster variable captures the estimated monetary damage of the event in percent of GDP.…”

Section: Datamentioning

confidence: 99%

Assessment of the Climate Impact on the Economic Variables of Monetary Policy: Regional Approach

2023

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Introduction. The relevance of quantitative analysis of the impact of climate variables on macroeconomic indicators of monetary policy according to Russian data in the regional aspect is due to the absence of such research. The purpose of the article is to perform a quantitative assessment of the climate change impact on key macroeconomic variables of monetary policy on panel data by Russian regions. Materials and Methods. Russian regions were the subject of the study. For calculations, the authors have formed the information base for 79 regions of the Russian Federation from 2000 to 2020 according to Rosstat. The applied methodology is based on the author’s approach, combining the use of factor analysis by region at fixed year and econometric modeling using integral factors obtained at the previous stage on the panel data by region. Econometric analysis was performed using a generalized method of moments and a two-stage systematic generalized method of moments. Results. The significant impact of climate change on key macroeconomic variables controlled in the development and implementation of monetary policy measures – gross regional product and consumer price index – has been identified empirically. The research was based on econometric modeling. Discussion and Conclusion. Objective climate change taking place in the Russian regions may adversely affect the economic situation, which requires intensification of implementation and development of measures aimed at improving the environmental situation: reduction of CO2 emissions, development and use of forest-saving technologies, etc. It is proposed to consider the climate situation in the implementation of monetary policy. The results of the research will be useful both in the development and implementation of regional policy, and for specialists, civil servants who plan to improve the territorial structure of the economic space of Russia in the long term.

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“…A decade after Hamond's (2012) work, inflation targeting has been described in differing lights by many stakeholders. Fratzscher et al (2020) describe inflation targeting as a shock absorber that protects the economy from perturbations and vulnerabilities. Ekinci et al (2020) found that inflation targeting had positive effects on economic growth on many countries in their sample.…”

Section: Literature Reviewmentioning

confidence: 99%

An Evaluation of the Optimal Inflation Target for Economic Growth in Nigeria

Falegan

Amali

2023

jsss

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This study uses the threshold regression method to determine the optimal inflation threshold for economic growth in Nigeria. There is evidence that establish that setting an inflation target as a nominal anchor that constrains price movements to a particular point or within a pre-agreed range is indispensable for economic growth. Application of the Bai-Perron structural breakpoints test to the data detected two breaks dated 1999 and 2011. The Lee-Strazicich Unit Root Test showed that the data were cointegrated. The threshold estimation for optimal inflation values in the 5% to 25% band revealed that the residual sums of squares, RSS, is minimized and the R2 is maximized at an optimal inflation threshold of 18% with a statistically significant regression model, suggesting that the optimal inflation target for economic growth in Nigeria is 18%. The Autoregressive Distributed Lag model (ARDL) estimate shows that a 1% increase in inflation leads to an increase of 0.017% GDP growth in Nigeria in the long-run. The estimation of the ARDL model indicate that the coefficients of exchange rate, trade openness and population growth present mixed signaling in relation to GDP growth in the long- and short-run. Our results indicate that the implementation of the inflation targeting framework in a credible, transparent and accountable way could help to anchor inflation expectations, rein in inflation and improve economic growth in Nigeria.

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Inflation targeting as a shock absorber

Cited by 40 publications

References 63 publications

Just Do IT? An Assessment of Inflation Targeting in a Global Comparative Case Study

Just Do IT? An Assessment of Inflation Targeting in a Global Comparative Case Study

Assessment of the Climate Impact on the Economic Variables of Monetary Policy: Regional Approach

An Evaluation of the Optimal Inflation Target for Economic Growth in Nigeria

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