Inflation volatility in small and large advanced open economies

Arbeitspapier

Inflation volatility is clearly important for structural analysis, forecasting and policy purposes, yet it is often overlooked in the literature. This paper compares in ation volatility among advanced open economies with in ation targeting monetary policy frameworks. The results of the empirical exercise using a panel dataset suggest that, over the last two decades, the volatility of in ation was similar among countries, even when controlling for monetary policy activity and other factors. In particular, there is only a weak and statistically not significant correlation between in ation volatility and country size. Also, point-targeting central banks (in contrast with range-targeters) and commodity exporters are only weakly associated with higher in ation swings. Equivalent conclusions are reached when decomposing in ation volatility in a transitory and a permanent component. I thus argue that small and large advanced open economies are exposed to global uctuations to a comparable extent. A range of robustness tests confirm that the results are not sensitive to methodological choices and the relationship was not altered by the Great Recession or the low interest rate environment.

Object Details

• ISBN: 978-92-899-4091-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2448

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Trade: General ; Open Economy Macroeconomics
• Subject: Prices ; Volatility ; Globalisation ; Inflation targeting

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mozzanica, Mirco Balatti
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2020

Further information

• DOI: doi:10.2866/76264
• Handle: http://hdl.handle.net/10419/229062
• Last update: 10.03.2025, 11:42 AM CET