Does Inflation Targeting Matter?

Journal Issue

Volume/Issue:: 2003/129
Series:: IMF Working Papers
Author(s):: Niamh Sheridan, and Laurence Ball
Publisher:: INTERNATIONAL MONETARY FUND
Published Date:: June 2003
DOI:: http://dx.doi.org/10.5089/9781451855135.001
ISBN:: 9781451855135
ISSN:: 1018-5941
Page:: 36

This paper asks whether inflation targeting improves economic performance, as measured by the behavior of inflation, output, and interest rates. We compare 7 OECD countries that adopted inflation targeting in the early 1990s to 13 that did not. After the early 1990s, performance improved along many dimensions for both targeting and nontargeting countries. In some cases, the targeters improved by more. However, these differences are explained by the fact that targeters performed worse than nontargeters before the early 1990s, and there is regression towards the mean. Once one controls for this, there is no evidence that inflation targeting improves performance.

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Does Inflation Targeting Matter?