Abstract
The lag in effect of monetary policy contains vital information for the policy evaluation. Allowing for a time-varying treatment effect, we show that Inflation Targeting (IT) effectively lowers inflation for both developed and developing countries. Developed countries reach their targets rapidly with a 2-year lag in effect. Developing countries, however, reduce inflation gradually towards their targets and do not reach their ultimate goal by the end year of 2007.
Notes
1We exclude five countries that adopt IT after 2005 – Ghana, Indonesia, Romania, the Slovak Republic and Turkey, because a 2-year experience or less seems too short to tell meaningful treatment effects of IT for developing countries.