Inflation-targeting and inflation volatility : international evidence from the cosine-squared cepstrum

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Authors

Antonakakis, Nikolaos
Christou, Christina
Gil-Alana, Luis A.
Gupta, Rangan

Journal Title

Journal ISSN

Volume Title

Publisher

Elsevier

Abstract

Existing empirical evidence on the effect of inflation-targeting on inflation volatility is, at best, mixed. However, comparing inflation volatility across alternative monetary policy regimes, i.e., pre- and post-inflation-targeting, begs the question. The question is not whether the volatility of inflation has changed, but instead whether the volatility is different than it otherwise would have been. Given this, our paper uses the cosine-squared cepstrum to provide overwhelming international evidence that inflation targeting has indeed reduced inflation volatility in 22 out of the 24 countries considered in our sample of established inflation-targeters, than it would have been the case if the central banks in these countries did not decide to set a target for inflation.

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Keywords

Cosine-squared cepstrum, Inflation-targeting, Inflation volatility

Sustainable Development Goals

Citation

Antonakakis, N., Christou, C., Gil-Alana, L.A. & Gupta, R. 2021, 'Inflation-targeting and inflation volatility : international evidence from the cosine-squared cepstrum', International Economics, vol. 167, pp. 29-38, doi : 10.1016/j.inteco.2021.05.004.