The seminar will be held in the Visitor Centre at 3 pm.
Evi Pappa
(Universitat Autonoma de Barcelona)
Abstract
Does inflation targeting matter? We answer this question by examining, via a structural VAR, the conditional dynamics of inflation and output growth in response to markup shocks for 14 industrialized countries. Markup shocks create a trade-off between output gap and inflation stabilization purposes and the theory suggests that the conditional output growth relative to inflation variability increases after the adoption of an inflation target. The data suggest a substantial increase in the estimated ratio for both targeters and non-targeters. No other structural change can explain this pattern except changes in the conduct of monetary policy. The main conclusion is unchanged when we condition on other supply shocks, or monetary policy shocks: inflation targeting seems to matter, but it is difficult to reconcile this with the fact that some countries have announced it.
JEL classification: E31, E42, E58
Keywords: inflation targeting, markup shocks, new policy trade off, trade-off ratio, policy ratio, conditional moments.