Re-evaluating the effectiveness of inflation targeting

This paper estimates the treatment effect of inflation targeting on macroeconomic variables using a semiparametric single index method by taking into account the model misspecification of parametric propensity scores. Our study uses a broader set of preconditions for inflation targeting and macroeco...

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Bibliographic Details
Published inJournal of economic dynamics & control Vol. 90; pp. 76 - 97
Main Authors Ardakani, Omid M., Kishor, N. Kundan, Song, Suyong
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.05.2018
Subjects
Inflation targeting
Propensity score
Single index model
Treatment effects
E5
Inflation targeting
Propensity score
Treatment effects
C14
Single index model
E4
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Summary:This paper estimates the treatment effect of inflation targeting on macroeconomic variables using a semiparametric single index method by taking into account the model misspecification of parametric propensity scores. Our study uses a broader set of preconditions for inflation targeting and macroeconomic outcome variables than the existing literature. The results suggest no significant difference in the inflation level and inflation volatility between targeters and non-targeters after the adoption of inflation targeting. We find that inflation targeting reduces sacrifice ratio and interest rate volatility in the developed economies, and that it enhances fiscal discipline in both the industrial and developing countries.
ISSN:0165-1889
1879-1743
DOI:10.1016/j.jedc.2018.01.045