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Gruen, Plumb, Stone
Francis, Owyang, Theodorou
Allington, Kattuman, Waldmann
Boivin, Ng
Vega, Winkelried
Svensson, Tetlow
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Inflation Targeting and Inflation Behavior: A Successful Story?

Marco Vegaa and Diego Winkelriedb

Abstract

This paper estimates the effects of inflation targeting (IT) adoption over inflation dynamics using a wide control group. We contribute to the current IT evaluation literature by considering the adoption of IT by a country as a treatment, just as in the program evaluation literature. Hence, we perform propensity score matching to find suitable counterfactuals to the actual inflation targeters. We find out that IT has helped in reducing the level and volatility of inflation in the countries that adopted it. This result is robust to alternative definitions of treatment and control groups.

JEL Codes: C50, E42, E52.

 
Full article (PDF, 23 pages 205 kb)


a London School of Economics and Central Bank of Peru
b St. Edmundís College, University of Cambridge