Inflation targeting: What have We learned?

Transcription

1 Inflation targeting: What have We learned? Carl E. Walsh University of California, Santa Cruz July, 8 1

2 Views on IT All the major benefits that an inflation-targeting framework was supposed to deliver have been realized and, in some cases, exceeded. (Bank of 6, p. 3) Today, inflation targeting is being put to the test and it will almost certainly fail. (J. E. Stiglitz 8) July, 8

3 The spread of inflation targeting emerging industrial 5 The number of inflation targeting central banks has grown steadily since 199 (Dates: Batini and Baxton 7 and Rose 7) The spread number of inflation targeting central banks has grown steadily since 199 (Dates: Batini and Baxton 7 and Rose 7) July, 8 3

4 The effects of IT x T T t t t t 1 t t 1 t t t x v T T t t t 1 t t 1 t t t v T T t t t t t July, 8

5 Post-IT / -199 Post-IT / -199 Inflation: mean and std. dev. Circles IT, Triangles non-it Mean Inflation Rates: Pre- IT & 199 vs Post-IT & Pre-IT / Standard Deviation of Inflation Rates: Pre- IT & 199 vs Post-IT & Pre-IT / -199 July, 8 5

6 ...6 Target: Inflation: Target: Inflation: Target: Inflation: Target: Inflation: Target: Inflation: Target: Inflation: Target: Inflation: Target: Inflation: 3.9 [.-.5[ [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5] ]3.5-.[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.[ [.-.5[ [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5] ]3.5-.[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.[ [.-.5[ [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5] ]3.5-.[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.[ [.-.5[ [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5] ]3.5-.[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.[ [.-.5[ [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5] ]3.5-.[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.[ [.-.5[ [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5] ]3.5-.[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.[ [.-.5[ [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5] ]3.5-.[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.[ July, 8 [.5-1.[ [1.-1.5[ [1.5-.[ [.-.5[ [.5-3.[ [3.-3.5[ [3.5-.] 6 [.-.5[ ].-.5[ [.5-5.[ [5.-5.5[ [5.5-6.]

7 Post-IT / -199 Post-IT / -199 Industrial production: growth rates and std. dev. Circles IT, Triangles non-it Mean Industrial Production Growth: Pre- IT & 199 vs Post-IT & Pre-IT / Standard Deviation of Industrial Production Growth: Pre- IT & 199 vs Post-IT & Pre-IT / -199 July, 8 7

8 post-199 or post-it Inflation versus output volatility Circles: IT, Triangles: non-it Std. dev. of inflation relative to growth rate of industrial production pre 199 or pre-it July, 8 8

9 IT and real growth and volatility Table 5b: Treatment effect of CIT on the level and variability of output growth rates Nearest Neighbor 3- Nearest Neighbor Radius r=.3 r=.1 r=.5 Local Linear Regression Kernel Effect on the output growth rates ATT Std. Err. (.566) (.77) (.) (.8) (.56) (.9) (.383) P-value Effect on the variability of output growth rates ATT Std. Err. (.31) (.199) (.176) (.11) (.5) (.188) (.168) P-value No. of treated No. of control No. of obs July, 8 9

10 Transparency: 5 Transparency: 5 versus 1998 Dincer and Eichengreen (7) Inflation targeters Non-inflation targeters Transparency: 1998 July, 8 1

11 Current challenges inflation targeting does not solve many perennial judgment questions facing central banks, particularly with respect to supply disturbances that push inflation in one direction and economic activity in the other. (Edwin Truman 3) It is not the task of monetary policy to attempt to influence changes in relative prices;.global increases in commodity prices undermine the prosperity of Swedish households. Monetary policy cannot do anything about this. (Riksbank Monetary Policy Report, 8/) If central banks continue to focus on price stability and keep inflation low and stable, there is every expectation that the current degree of macroeconomic stability will continue. (John Taylor 5) July, 8 11

12 Inflation experiences: OECD countries Inflation targeters Non-inflation targeters (including Switzerland, excluding Turkey) July, 8 1

13 Fraction of responding firms Inflation and expected inflation in Q 6Q3 6Q 7Q1 7Q 7Q3 7Q 8Q1 1% or less % or less 3% or less CPI inflation Exp. Inflation (bond yields) July, 8 13

14 Inflation and expected inflation in New Zealand CPI inflation 1-year ahead expected inflation -year ahead expected inflation July, 8 1

15 Expected inflation U. S. U.S. 1-year inflation expectations (derived from adjusted TIPS) July, 8 15