After discussing the operational framework for inflation targeting (including the price index to monitor the time horizon, the forecasting procedures, and the role of asset prices), he examines recent experiences with inflation targets, providing new evidence on the convexity of the Phillips curve for six developing countries. After presenting a formal analytical framework, the author discusses the basic requirements for inflation targeting, and how such a regime differs from money,and exchange rate targeting regimes. The author provides an introduction to inflation targeting, with an emphasis on analytical issues, and the recent experience of middle- and high-income developing countries (which have relatively low inflation to begin with, and reasonably well-functioning financial markets). In the past few years, a number of central banks have adopted inflation targeting for monetary policy. New evidence on the convexity of the Phillips curve is also provided for six developing countries. The last part of the paper focuses on some current research issues in the literature, including the role of nonlinearities regarding both policy preferences and the slope of the output-inflation tradeoff.), uncertainty (about behavioral parameters and transmission lags), and the treatment of credibility in empirical models of inflation. Next, recent experiences with inflation targets are examined. The operational framework of inflation targeting (including the price index to monitor, the target horizon, forecasting procedures, and the role of asset prices) is then discussed. After presenting a formal framework, it discusses basic requirements for inflation targeting and how such a regime differs from money and exchange rate targeting regimes. This paper provides an introduction to inflation targeting, with a particular emphasis on analytical issues and the recent experience of developing countries. There is also evidence that the covariance of inflation shocks among inflation targeting and non-targeting countries tends to increase. Overall, the results suggest that Asian inflation targeting regimes are more credible in terms of reducing the level of inflation than lowering inflation volatility. We also find that the adoption of inflation targeting helped lower inflation volatility in the Philippines and South Korea. We find strong evidence of a reduction in the level of inflation that operates from the impact of actual inflation targets in the Philippines, South Korea and Thailand. Our main contribution is to shed new light on the inflation targeting credibility hypothesis based on lower inflation and inflation volatility as well as on the correlation between unanticipated inflation shocks within a panel GARCH framework.
#Bank of israel exchange rates series#
In contrast to existing studies that rely upon time series methods, we employ a novel panel GARCH model that accounts for heterogeneity and interdependence across countries. We examine the relationship between inflation targeting and the behavior of the level and volatility of inflation for eight Asian countries over the period 1987–2013.
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