Oxford Economic Papers Advance Access published online on January 8, 2008
Oxford Economic Papers, doi:10.1093/oep/gpm047
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© Oxford University Press 2008 All rights reserved
Assessing inflation targeting through intervention analysis
*Cambridge Centre for Economic and Public Policy, Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge CB3 9EP; e-mail: aa314{at}cam.ac.uk
Cambridge Centre for Economic and Public Policy, Department of Land Economy, University of Cambridge, 19 Silver Street, Cambridge CB3 9EP; e-mail: pa267{at}cam.ac.uk
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Abstract |
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The aim of this paper is to deal with the empirical aspects of the ‘new’ monetary policy framework, known as Inflation Targeting. Applying Intervention Analysis to multivariate Structural Time Series models, which avoids certain biases encountered in the use of conventional regression estimators, new empirical evidence is produced in the case of a number of OECD countries. These results demonstrate that although Inflation Targeting has gone hand-in-hand with low inflation, the strategy was introduced well after inflation had begun its downward trend. But, then, Inflation Targeting ‘locks in’ low inflation rates. The evidence produced in this paper suggests that non-Inflation Targeting central banks have also been successful on this score.
Key Words: JEL classifications: E31 • E52