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Inflation Targeting Matters: Evidence from OECD Economies' Sacrifice Ratios
Author(s) -
GONÇALVES CARLOS EDUARDO S.,
CARVALHO ALEXANDRE
Publication year - 2009
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2008.00195.x
Subject(s) - economics , inflation (cosmology) , inflation targeting , monetary economics , debt , real interest rate , monetary policy , macroeconomics , physics , theoretical physics
Using data from OECD economies, we show that inflation targeters suffered smaller output losses during disinflations when compared to nontargeters. We also study why some countries choose to inflation target while others do not and find that higher average inflation and smaller debt levels render the adoption of the regime more likely. Applying Heckman's procedure to control for selection bias does not alter the link between inflation targeting and less costly disinflations.