Inflation targeting as a shock absorber

Arbeitspapier

We study the characteristics of inflation targeting as a shock absorber, using quarterly data for a large panel of countries. To overcome an endogeneity problem between monetary regimes and the likelihood of crises, we propose to study large natural disasters. We find that inflation targeting improves macroeconomic performance following such exogenous shocks. It lowers inflation, raises output growth, and reduces inflation and growth variability compared to alternative monetary regimes. This performance is mostly due to a different response of monetary policy and fiscal policy under inflation targeting. Finally, we show that only hard but not soft targeting reaps the fruits: deeds, not words, matter for successful monetary stabilization.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: DIW Discussion Papers ; No. 1721

Classification and Topics

• Classification: Wirtschaft ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Monetary Policy ; Central Banks and Their Policies
• Subject: Monetary Policy ; Central Banks ; Monetary Regimes ; Dynamic Effects

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fratzscher, Marcel ; Grosse Steffen, Christoph ; Rieth, Malte
• Event: Veröffentlichung
• (who): Deutsches Institut für Wirtschaftsforschung (DIW)
• (where): Berlin
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/175079
• Last update: 10.03.2025, 11:42 AM CET