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Does the Global Financial Crisis Matter for the Macro Economic Performance of Inflation Targeting in Advanced and Developing Countries?: A Panel Study

Year 2016, Volume: 16 Issue: 3, 35 - 50, 19.10.2016
https://doi.org/10.18037/ausbd.390332

Abstract



 Inflation targeting has come under sharp attack in the aftermath of the global financial crisis. In this paper we compare the macroeconomic performances of advanced and developing inflation targeting countries before and after the global financial crisis. Using a panel data methodology, we assess the effectiveness of the inflation targeting framework in both country groups when confronting a serious shock. Our results demonstrate that developing inflation targeting countries seem to have performed better in handling the global financial crisis and to have outperformed their advanced peers in the aftermath of the crisis. We argue that the performance of developing inflation targeting countries has arisen from an inflation targeting framework and countercyclical fiscal policy. The global financial crisis also reveals that price stability is not enough to secure financial stability and growth. The main issue for the future of inflation targeting is to incorporate financial stability. 

References

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  • Borio, C., Disyatat, P. (2009). Unconventional Monetary Policies: An Appraisal. Bank for International Settlements Working Papers, 292.
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  • Coulibaly, B. (2012). Monetary Policy in Emerging Market Economies: What Lessons from the Global Financial Crisis. Board of Governors of the Federal Reserve System International Finance Discussion Papers, 1042.
  • Decressin, J., Laxton, D. (2009). Gauging Risks for Deflation, International Monetary Fund Staff Position Note, 09/01.
  • Didier, T., Constantino, H., Schmukler, S.L. (2012). How Resilient and Countercyclical were Emerging Economies During the Global Financial Crisis?. Journal of International Money and Finance, 31, 2052-2077.
  • Dueker, M. J., Fischer, A. M. (2006). Do Inflation Targeters Outperform Non-Targeters. Federal Reserve Bank of St. Louis Review, 84, 431-450.
  • El-Arian, M.A. (2010). Navigating the New Normal in Industrial Countries. The Per Jacobsson Lecture, Washington.
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  • Frankel, J., Vegh, C., Vulletin, G. (2011). On Graduation from Fiscal Procyclicality. National Bureau of Economic Research Working Paper, 17691.
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Year 2016, Volume: 16 Issue: 3, 35 - 50, 19.10.2016
https://doi.org/10.18037/ausbd.390332

Abstract

References

  • Angeriz, A., Arestis, P. (2008). Assessing Inflation Targeting through Intervention Analysis. Oxford Economic Papers, 60, 293-317.
  • Arestis, P. (2012). A Historical, Theoretical and Empirical Perspective on Inflation Targeting in Hagen M. Kramer, Heinz D. Kurz & Hans-Michael Trautwein, (Eds). Macroeconomics and the History of Economic Thought Festschrift in Honour of Harald Hagemann, 196-208. New York: Routledge.
  • Arestis, P., Caporale, G. M., Cippolini, A. (2002). Does Inflation Targeting Affect the Trade Off Between Output Gap and Inflation Variability. The Manchester School, 70, 528–545.
  • Arestis, P., Sawyer, M. (2010). What Monetary Policy After the Crisis?. Review of Political Economy, 22, 499–515.
  • Arestis, P., Sawyer, M. (2013). Moving from Inflation Targeting and Incomes Policy. Panoeconomicus, 60, 1-17.
  • Ball, L. (2010). The Performance of Alternative Monetary Regimes. National Bureau of Economic Research Working Paper, 16124.
  • Ball, L., Sheridan, N. (2005). Does Inflation Targeting Matter?. in Ben S. Bernanke & Michael Woodford, (Eds). The Inflation-Targeting Debate, 249-282. Chicago: University of Chicago Press. Bank for International Settlements. (2010). 80th Annual Report.
  • Bank of Japan. (2012). The Price Stability Goal in the Medium to Long Term. February 14, 2012, Retriewed 29.01.2015, from http://www.boj.or.jp/en/announcements/ release_2012/k120214b.pdf.
  • Batini, N., Laxton, D. (2007). Under What Conditions Can Inflation Targeting be Adopted? The Experience of Emerging Markets. in Frederic S. Mishkin, Klaus Schmidt-Hebbel & Norman Loayza, (Eds). Monetary Policy Under Inflation Targeting, p. 467- 506. Central Banking, Analysis and Economic Policies Book Series. Santiago: Banco Central de Chile.
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  • Bernanke, B.S. (2003). A Perspective on Inflation Targeting. Remarks at the Annual Washington Policy Conference of the National Association of Business Economists, Washington, March 25, 2003.
  • Blanchard, O. (2009). The State of Macro. Annual Review of Economics, 1, 209–228.
  • Blanchard, O., Del’Ariccia, G., Mauro, P. (2010). Rethinking Macroeconomic Policy. Journal of Money, Credit and Banking Supplement, 42, 199-215.
  • Blanchard, O. J., Mitali D., Faruqee, H. (2010). The Initial Impact of the Crisis on Emerging Market Countries. Brookings Papers on Economic Activity, 41, 263-307.
  • Borio, C. (2011). Central Banking Post-Crisis: What Compass for Uncharted Waters?. Bank for International Settlements Working Papers, 353.
  • Borio, C., White, W. (2004). Whither Monetary and Financial Stability? The Implications of Evolving Policy Regimes. Bank for International Settlements Working Papers, 147.
  • Borio, C., Disyatat, P. (2009). Unconventional Monetary Policies: An Appraisal. Bank for International Settlements Working Papers, 292.
  • Broto, C. (2011). Inflation targeting in Latin America: Empirical Analysis Using GARCH Models. Economic Modelling, 28, 1424-1434.
  • Buiter, W. (2009). The Unfortunate Uselessness of Most State of the Art Academic Monetary Economics. March 3, 2009. Retriewed 29.01.2015, from http://blogs.ft.com/maverecon/2009/03/the-unfortunate-uselessness-of-most-state-of-the-art-academic-monetary-economics/.
  • Bullard, J. B. (2012). Inflation Targeting in the USA. Speech at the Union League Club of Chicago. Chicago, February 6, 2012.
  • Cameron, A. C. & Trivedi, P. K. (2006). Microeconometrics Methods and Applications. Cambridge: Cambridge University Press.
  • Carney, M. (2012). Guidance. Remarks at the CFA Society, Toronto. December 11, 2012. Retriewed 29.01.2015, from http://www.bankofcanada.ca/2012/12/speeches/guidance/.
  • Cecchetti, S. G., Ehrmann, M. (2002). Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers’ Preferences and Outcomes in Norman Loayza & Klaus Schmidt-Hebbel, (Eds). Monetary Policy: Rules and Transmission Mechanisms, 247-274. Central Banking, Analysis and Economic Policies Book Series. Santiago: Banco Central de Chile.
  • Claessens, S., Dell’Ariccia, G., Igan, D., Laeven, L. (2010). Cross-Country Experiences and Policy Implications from the Global Financial Crisis. Economic Policy, 25, 267-293.
  • Clarida, R., Gali, J., Gertler, M. (1999). The Science of Monetary Policy: A New Keynesian Perspective. Journal of Economic Literature, 37, 1661–1707.
  • Coulibaly, B. (2012). Monetary Policy in Emerging Market Economies: What Lessons from the Global Financial Crisis. Board of Governors of the Federal Reserve System International Finance Discussion Papers, 1042.
  • Decressin, J., Laxton, D. (2009). Gauging Risks for Deflation, International Monetary Fund Staff Position Note, 09/01.
  • Didier, T., Constantino, H., Schmukler, S.L. (2012). How Resilient and Countercyclical were Emerging Economies During the Global Financial Crisis?. Journal of International Money and Finance, 31, 2052-2077.
  • Dueker, M. J., Fischer, A. M. (2006). Do Inflation Targeters Outperform Non-Targeters. Federal Reserve Bank of St. Louis Review, 84, 431-450.
  • El-Arian, M.A. (2010). Navigating the New Normal in Industrial Countries. The Per Jacobsson Lecture, Washington.
  • Erlat, H. (1997). Panel Data: A Selective Survey. Yapi Kredi Research Department Discussion Series, No. 97–04.
  • Federal Open Market Committee. (2012) Press Release. January 25, 2012. Retriewed 29.01.2015, from http://www.federalreserve.gov/newsevents/press/ monetary/20120125c.htm.
  • Filho, I. C. (2011). 28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession. The B. E. Journal of Macroeconomics, 11, 1-44.
  • Fouejieu, A. A, Roger, S. (2013). Inflation Targeting and Country Risk: an Empirical Investigation. International Monetary Fund Working Paper, 13/21.
  • Fraga, A., Goldfajn, I, Minella, A. (2003). Inflation Targeting in Emerging Market Economies. National Bureau of Economic Research Working Paper, 10019.
  • Frankel, J., Vegh, C., Vulletin, G. (2011). On Graduation from Fiscal Procyclicality. National Bureau of Economic Research Working Paper, 17691.
  • Frankel, J. (2012). Inflation Targeting Is Dead: Long Live Nominal GDP Targeting. June 19, 2012. Retriewed 29.01.2015, from http://www.voxeu.org/article/ inflation-targeting-dead-long-live-nominalgdp- targeting.
  • Frappa, S., Mésonnier, J. S. (2010). The Housing Price Boom of the Late 1990s: Did Inflation Targeting Matter. Journal of Financial Stability, 6, 243-254.
  • Freedman, C., Laxton, D. (2009). Why Inflation Targeting?. International Monetary Fund Working Paper, 09/86.
  • Friedman, B. F. (2004). Monetary Policy for Emerging Market Economies: Beyond Inflation Targeting. Macroeconomics and Finance in Emerging Market Economies, 1, 1-12.
  • Gerlach, S., Giovannini. A, Tille,C., Viñals, J. (2009). Are the Golden Years of Central Banking Over? The Crisis and the Challenges. London: Centre for Economic Policy Research.
  • Goncalves, C. E. S., Salles, J. M. (2008). Inflation Targeting in Emerging Economies: What do the Data Say. Journal of Development Economics, 85, 312- 318.
  • Goncalves, C. E. S., Carvalho, A. (2009). Inflation Targeting Matters: Evidence from OECD Economies’ Sacrifice Ratios. Journal of Money, Credit and Banking, 41, 233–243.
  • Grauwe, P. (2007). There is more to Central Banking than Inflation Targeting. Nowember 14, 2007. Retriewed 29.01.2015, from http://www.voxeu.org/ article/subprime-crisis-time-inflation-targetingrethink.
  • Gudmundsson, M. (2010). Challenges to Inflation Targeting: Raising Some Issues. Bank for International Settlements Papers, 51.
  • Gujarati, D.N. (2003). Basic Econometrics. New York: McGraw-Hill.
  • Gürkaynak, R. S., Levin, A. T., Marder, A. N., Swanson, A. T. (2007). Inflation Targeting and the Anchoring of Inflation Expectations in the Western Hemisphere in Frederic S. Mishkin, Klaus Schmidt- Hebbel & Norman Loayza, (Eds). Monetary Policy Under Inflation Targeting, p. 415-465. Central Banking, Analysis and Economic Policies Book Series. Santiago: Banco Central de Chile.
  • Habermeier, K., Ötker-Robe, I., Jacome, L., Giustiniani, A., Ishi, K., Vávra, D., Kışınbay, T., Vazquez,F. (2009). Inflation Pressures and Monetary Policy Options in Emerging and Developing Countries- A Cross Regional Perspective. International Monetary Fund Working Paper, 09/1.
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Details

Primary Language English
Journal Section Articles
Authors

Assoc. Prof. Dr. Metin Özdemir

Asst. Prof. Dr. Selim Tüzüntürk

Publication Date October 19, 2016
Submission Date January 11, 2015
Published in Issue Year 2016 Volume: 16 Issue: 3

Cite

APA Özdemir, A. P. D. M., & Tüzüntürk, A. P. D. S. (2016). Does the Global Financial Crisis Matter for the Macro Economic Performance of Inflation Targeting in Advanced and Developing Countries?: A Panel Study. Anadolu Üniversitesi Sosyal Bilimler Dergisi, 16(3), 35-50. https://doi.org/10.18037/ausbd.390332

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