Working Paper: NBER ID: w9577
Authors: Laurence Ball; Niamh Sheridan
Abstract: This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare seven OECD countries that adopted inflation targeting in the early 1990s to thirteen that did not. After the early 90s, performance improved along many dimensions for both the targeting countries and the non-targeters. In some cases the targeters improved by more; for example, average inflation fell by a larger amount. However, these differences are explained by the facts that targeters performed worse than non-targeters before the early 90s, and there is regression to the mean. Once one controls for regression to the mean, there is no evidence that inflation targeting improves performance.
Keywords: inflation targeting; economic performance; OECD countries
JEL Codes: E5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation targeting (E31) | inflation (E31) |
| inflation targeting (E31) | inflation expectations (E31) |
| inflation targeting (E31) | long-term interest rates (E43) |
| inflation targeting (E31) | variability of short-term interest rates (E43) |
| prior performance of targeters (C52) | inflation targeting (E31) |