Working Paper: CEPR ID: DP6529
Authors: Ilian Mihov; Andrew K. Rose
Abstract: We compare the duration and performance of different monetary regimes, especially the contrast between countries those that fix exchange rates and those that target inflation. Inflation targeting is a more durable policy; no country has yet been forced to abandon an inflation target, while many have abandoned fixed exchange rates. Indeed, even though inflation targeting began only in 1990, the duration of inflation targeting regimes is at least as long as, or longer than all alternative monetary regimes for comparable countries. Regime duration also matters in monetary policy; older regimes are typically more successful than younger ones in achieving low inflation.
Keywords: duration; exchange rate targeting; inflation performance; inflation targeting; monetary policy; monetary regimes
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| duration of monetary regime (E42) | inflation outcomes (E31) |
| inflation targeting (IT) regime duration (E63) | inflation outcomes (E31) |
| older monetary regimes (E42) | low inflation (E31) |
| each additional year of IT regime (H26) | likelihood of achieving low inflation (0-4%) (E31) |
| inflation targeting (IT) regime duration (E63) | better inflation results (E31) |
| longer monetary regimes (E42) | better inflation results (E31) |