Inflation targeting and the cyclicality of monetary policy

John Thornton, Chrysovalantis Vasilakis

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Abstract

We assess whether the adoption of inflation targeting (IT) frameworks has facilitated countercyclical monetary policies in a sample of 90 industrial and developing economies, 22 of which have adopted IT. Using propensity score matching methods, we show that the aver- age treatment effect of IT has a statistically significant and quantitatively quite large effect in facilitating a more countercyclical monetary policy in IT adopting countries.
Original languageEnglish
JournalFinance Research Letters
Volume20
Issue number2
Early online date28 Oct 2016
DOIs
Publication statusPublished - Feb 2017

Keywords

  • Inflation targeting, Monetary policy cyclicality, Treatment effect, Propensity score matching

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