An assessment of inflation targeting

Abstract

The effectiveness of inflation targeting is linked to the stationarity properties of inflation. Without making apriori assumptions about the order of integration, we examine whether there is a change in the inflation persistence in one hundred and twenty-seven countries (developed and developing) using monthly data over the 1970–2021 period. For the inflation targeters, we find that the endogenously identified break dates are not consistent with the formal adoption of IT. Logit analysis reveals that inflation targeters do not experience an increased probability of a change in inflation persistence. The quality of institutions emerges as more significant for taming inflation.