June, 22 2006, Klaus Schmidt-Hebbel D.: Does Inflation Targeting Make a Difference?
The seminar will be held in the Visitor Centre at 2 pm. in English language
Klaus Schmidt-Hebbel
Chief of Economic Research
Central Bank of Chile
Discussant: Ágnes Csermely
Abstract
Yes, as inferred from panel evidence for inflation-targeting countries and a control group of high-achieving industrial countries that do not target inflation. Our evidence suggests that inflation targeting helps countries achieve lower inflation in the long run, have smaller inflation response to oil price and exchange rate shocks, strengthen monetary policy independence, improve monetary policy efficiency, and obtain inflation outcomes closer to target levels. Some benefits of inflation targeting are larger when inflation targeters have achieved disinflation and are able to make their inflation targets stationary. Despite these favorable results for inflation targeting, our evidence does not suggest that countries that adopt inflation targeting have attained better monetary policy performance relative to our control group of successful non-inflation targeters. However, inflation targeting does seem to help countries converge toward the performance of the control group. The one exception to the generally better performance of the control group is the attainment of inflation targets or objectives. Controlling for exogenous inflation shocks, we report tentative evidence that inflation targeters are more successful than nontargeters in reducing inflation deviations from inflation trends – a likely result of the stronger, explicit focus on inflation control among inflation-targeting central banks.