An assessment of inflation targeting in a quantitative monetary business cycle framework: evidence from four early adopters

Dooyeon Cho, Dong-Eun Rhee

Research output: Contribution to journalArticle

Abstract

This article examines the effectiveness of inflation targeting (IT) to stabilize the real economy in advanced countries where IT was adopted in the early 1990s. To quantitatively assess IT, this article employs the monetary business cycle accounting methodology recently developed by Šustek (2011), which is an extended version of Chari, Kehoe, and McGrattan (2007), to monetary models. Our main finding is that the monetary policy wedge that captures economic fluctuations caused by monetary policy has significantly declined since the implementation of IT in the early 1990s. The results suggest that advanced economies, such as Australia, Canada, Sweden and the United Kingdom, that adopted IT in the early 1990s have been successful in stabilizing business cycle fluctuations.

Original languageEnglish
Pages (from-to)3395-3413
Number of pages19
JournalApplied Economics
Volume47
Issue number32
DOIs
Publication statusPublished - 2015 Jul 9
Externally publishedYes

    Fingerprint

Keywords

  • inflation targeting
  • monetary business cycle accounting
  • Taylor rule

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this