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Why hit the target? - Does the use of inflation targeting help stabilize inflation and increase GDP?

Drejer Jensen, Mark LU and Petræus, Claus Eduard LU (2018) NEKP01 20182
Department of Economics
Abstract
This paper studies the effects of inflation targeting on inflation, inflation expectations, and GDP growth in developed countries, where such a regime has been implemented. The results are compared to those of the control group of developed countries, that have not introduced an inflation-targeting regime. The data is from the period 1980-2017 and is sourced from the International Monetary Fund and the Ifo Institute.
The results indicate, that the countries that have introduced inflation targeting are able to reduce inflation in the post-period after the introduction of the regime. In the same period the countries of the control group also manage to reduce inflation. A solid conclusion regarding the reason for the fall in inflation cannot... (More)
This paper studies the effects of inflation targeting on inflation, inflation expectations, and GDP growth in developed countries, where such a regime has been implemented. The results are compared to those of the control group of developed countries, that have not introduced an inflation-targeting regime. The data is from the period 1980-2017 and is sourced from the International Monetary Fund and the Ifo Institute.
The results indicate, that the countries that have introduced inflation targeting are able to reduce inflation in the post-period after the introduction of the regime. In the same period the countries of the control group also manage to reduce inflation. A solid conclusion regarding the reason for the fall in inflation cannot be drawn for either of the two groups of countries, but a possible explanation might stem from similar monetary policies.
The inflation-targeting countries experience stable GDP growth after the introduction of the regime. Growth was significantly higher for inflation-targeting countries compared to the countries in the control group.
Overall, it is concluded that the specific inflation-targeting regime, where a point target without a tolerance band is applied, has been a success, as it has helped reduce inflation expectations in countries where the regime was implemented. (Less)
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author
Drejer Jensen, Mark LU and Petræus, Claus Eduard LU
supervisor
organization
course
NEKP01 20182
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Inflation targeting, GDP growth, Inflation, Inflation expectations, Difference-In-Difference
language
English
id
8960232
date added to LUP
2018-10-29 09:08:27
date last changed
2018-10-29 09:08:27
@misc{8960232,
  abstract     = {{This paper studies the effects of inflation targeting on inflation, inflation expectations, and GDP growth in developed countries, where such a regime has been implemented. The results are compared to those of the control group of developed countries, that have not introduced an inflation-targeting regime. The data is from the period 1980-2017 and is sourced from the International Monetary Fund and the Ifo Institute.
The results indicate, that the countries that have introduced inflation targeting are able to reduce inflation in the post-period after the introduction of the regime. In the same period the countries of the control group also manage to reduce inflation. A solid conclusion regarding the reason for the fall in inflation cannot be drawn for either of the two groups of countries, but a possible explanation might stem from similar monetary policies.
The inflation-targeting countries experience stable GDP growth after the introduction of the regime. Growth was significantly higher for inflation-targeting countries compared to the countries in the control group.
Overall, it is concluded that the specific inflation-targeting regime, where a point target without a tolerance band is applied, has been a success, as it has helped reduce inflation expectations in countries where the regime was implemented.}},
  author       = {{Drejer Jensen, Mark and Petræus, Claus Eduard}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Why hit the target? - Does the use of inflation targeting help stabilize inflation and increase GDP?}},
  year         = {{2018}},
}