Inflation targeting during asset and commodity price booms

Batini, Nicoletta; Tereanu, Eugen

doi:10.1093/oxrep/grp032

Cited by 6 publications

(5 citation statements)

References 19 publications

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“…Consistent with other studies, the muted response of inflation in IT countries compared with other regimes possibly points to the anchoring of inflation expectations because of its credibility and flexible exchange rate, which dampens shocks (see, e.g. , Batini and Tereanu, ; Mishkin and Schmidt‐Hebbel, ).…”

Section: Results Analysissupporting

confidence: 84%

“…After IT adoption, central banks seem to respond to shocks more gradually as they try to smooth interest rates to reduce their volatility and improve the predictability of monetary policy (Svensson, ). The impulse responses of the interest rate after IT adoption are less hump‐shaped than the pattern observed in most theoretical Dynamic Stochastic General Equilibrium Models (DSGE) models, thus further supporting the interest rate smoothing explanation (Batini and Tereanu, ).…”

Section: Results Analysissupporting

confidence: 54%

“…Over the years, emerging market economies (EMEs) have experienced different waves of commodity terms of trade shocks, which have been periodically large and persistent. For example, the sharp increases in commodity prices between 2003 and 2008, where oil and food prices rose by almost 160% and 900%, respectively, have generated large terms of trade fluctuations (Batini and Tereanu, ). In many EMEs, such swings have become a recurring source of macroeconomic volatility (Mendoza, ; Ahmed, ).…”

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies

Hove

Mama

Tchana

2015

South African J Economics

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Emerging market economies (EMEs) have persistently experienced different waves of commodity terms of trade disturbances, generating macroeconomic instabilities. The adoption of inflation targeting (IT) by many EMEs has raised questions about its relative suitability in dealing with these shocks compared with other monetary policy regimes. This paper tests the robustness of IT compared with monetary targeting and exchange rate targeting regimes in coping with commodity terms of trade shocks using the panel vector autoregressive technique. The results show that in general, IT countries respond better to commodity terms of trade shocks especially with respect to inflation and output gap. However, exchange rates are more volatile in IT countries than in exchange rate targeting countries. The results suggest that EME countries can reduce the adverse effects of commodity terms of trade fluctuations when they adopt IT, but they also need to pay attention to exchange rate movements.

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Section: Results Analysissupporting

confidence: 84%

Section: Results Analysissupporting

confidence: 54%

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies

Hove

Mama

Tchana

2015

South African J Economics

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“…Under an inflation-targeting regime, it is known that the response lag of changes in interest, in practice, is about two years. (Batini and Tereanu, 2010). Furthermore, as documented by some previous studies (among others, Bollino, 2007;Chemingui and Roa, 2008;El Anshasy and Bradley, 2012), oil prices affect fiscal policy through a transmission mechanism.…”

Section: Discussion and Policy Implicationsmentioning

confidence: 78%

Unveiling the Time-dependent Dynamics between Oil Prices and Exchange Rates: A Wavelet-based Panel Analysis

Karlsson¹,

Månsson²,

Sjölander³

2020

The Energy Journal

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The objective of this paper is to re-examine the relationship between real oil prices and real effective exchange rates (REER) for major oil-exporting countries with floating exchange rates. We apply the wavelet-based principles of Gallegati et al. ( 2016) using monthly data for the period 1996 to 2015. In contrast to many previous studies, our results support the theoretically expected positive nexus between the real oil prices and REER for our dataset. This (theoretically-expected) positive relationship is stronger at the larger time scales (that is, at the 4-8 and 8-16 month wavelet scales) compared to the smaller time scales (that is, at the 1-2 and 2-4 month wavelet scales). The findings of this study therefore add to the existing literature, since they disentangle the specific relationship between oil prices and exchange rates at different time scales, which has important policy implications.

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“…2 For details on managing the copper price boom in Chile, see DeGregorio and Labbe( 2011).3 See, for example,Medina and Soto (2005) andBatini and Tereanu (2010).…”

mentioning

confidence: 99%

Commodity Prices, Monetary Policy, and Inflation

Gregorio¹

2012

IMF Econ Rev

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During the second half of the 2000s, the world experienced a rapid and substantial rise in commodity prices. This shock posed complex challenges for monetary policy, in particular because of the significant increase in food and energy prices, and the repercussions they had on aggregate inflation measures. This paper discusses the role of commodity price shocks (CPS) in monetary policy in the light of recent episodes of such shocks. It begins by discussing whether monetary policy should target core or headline inflation, and what should be the role of CPS in setting interest rates. It is argued that there are good reasons to focus on headline inflation, as most central banks actually do. Although core inflation provides a good indicator of underlying inflation pressures, the evolution of commodity prices should not be overlooked, because of pervasive second-round effects. This paper reviews the evidence on the rise of inflation across countries and reports that food inflation, more than energy inflation, has relevant propagation effects on core inflation. This finding is particularly important in emerging market economies, where the share of food in the consumer basket is significant. The evidence also shows that countries that had lower inflation during the run up of commodity prices before the global crisis had more inflation in the subsequent rise after the global crisis, suggesting that part of the precrisis inflationary success may have been because of repressed inflation. This paper also discusses other factors that may explain different inflationary performances across countries

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Inflation targeting during asset and commodity price booms

Cited by 6 publications

References 19 publications

Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies

Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies

Unveiling the Time-dependent Dynamics between Oil Prices and Exchange Rates: A Wavelet-based Panel Analysis

Commodity Prices, Monetary Policy, and Inflation

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