Measuring inflation targeting's impact on the macroeconomy

Abstract

This article analyses inflation targeting's (IT) impact on key macroeconomic variables in Australia, Canada, Chile, Colombia, Israel, Korea, Mexico, New Zealand, Sweden and the United Kingdom in the spirit of Mishkin and Posen (1997). Across this sample, inflation and interest rates predicted from parsimonious, automatically reduced VARs consistently overestimate those observed following IT adoption.

Notes

¹ Given the results in Sims et al. (1990), potential nonstationarity in the systems under investigation should not affect the model selection process.