Transitions between monetary policy frameworks and their effects on economic performance

David Cobham, Mengdi Song

Research output: Contribution to journalArticle

Abstract

The widespread adoption of inflation targeting (IT) from the early 1990s led to investigations of its effect on macroeconomic performance (inflation and growth), with the emergence of a majority view that the effects were small for advanced countries but possibly larger for emerging economies. We revisit the issue, using a new de facto (rather than de jure) classification of monetary policy frameworks and employing the difference-in-differences approach with regression to the mean effects in order to deal with the problem of endogeneity. We find small effects for advanced countries but insignificant effects for emerging economies. We then question the nature of the mean to which regression occurs and suggest instead that there are strong international trend/network effects leading policymakers to make similar policy decisions (with similar macro outcomes) from within different frameworks. We also find IT has not affected macro performance in the period after the Global Financial Crisis. 

Original languageEnglish
JournalEconomic Modelling
Early online date6 Mar 2020
DOIs
Publication statusE-pub ahead of print - 6 Mar 2020

Keywords

  • Difference-in-differences
  • Inflation targets
  • International trends
  • Monetary policy frameworks
  • Network effects
  • Regression to the mean

ASJC Scopus subject areas

  • Economics and Econometrics

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