de Carvalho Filho, Irineu (2011): 28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession.
Download (605kB) | Preview
Twenty-eight months after the onset of the global financial crisis of August 2008, the evidence on post-crisis GDP growth emerging from a sample of 51 advanced and emerging countries is flattering for inflation targeting countries relative to their peers. The positive effect of IT is not explained away by plausible pre-crisis determinants of post-crisis performance, such as growth in private credit, ratios of short-term debt to GDP, reserves to short-term debt and reserves to GDP, capital account restrictions, total capital inflows, trade openness, current account balance and exchange rate flexibility, or post-crisis drivers such as the growth performance of trading partners and changes in terms of trade. We find that inflation targeting countries lowered nominal and real interest rates more sharply than other countries; were less likely to face deflation scares; and had sharp real depreciations without a relative deterioration in their risk assessment by markets. While the task of establishing causal relationships from cross-sectional macroeconomics series is daunting, our reading of this evidence is consistent with the resilience of IT countries being related to their ability to loosen their monetary policy when most needed, thereby avoiding deflation scares and the zero lower bound on interest rates.
|Item Type:||MPRA Paper|
|Original Title:||28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession|
|Keywords:||Inflation targeting; economic crisis; monetary policy; Great Recession|
|Subjects:||E - Macroeconomics and Monetary Economics > E0 - General > E00 - General
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles
|Depositing User:||Irineu de Carvalho Filho|
|Date Deposited:||07. Mar 2011 19:28|
|Last Modified:||11. Feb 2013 19:26|
Ball, Laurence. 2010. “The Performance of Alternative Monetary Regimes,” NBER Working Paper 16124.
Ball, Laurence, and Niall Sheridan. 2005. “Does inflation targeting matter?” In: Bernanke B, Woodford M (Eds.), The inflation targeting debate. The University of Chicago Press: Chicago; 2005. p. 249-276.
Batini, Nicoletta, Kenneth Kuttner and Doug Laxton. 2005. “Does Inflation Targeting Work in Emerging Markets?,” IMF World Economic Outlook, September 2005.
Batini, Nicoletta and Doug Laxton. 2007. “Under What Conditions Can Inflation Targeting Be Adopted? The Experience of Emerging Markets,” In: Mishkin F. and Schmidt-Hebbel, K. (Eds.), Monetary Policy Under Inflation Targeting, Central Bank of Chile: Santiago, pp. 1-38.
Benigno, Pierpaolo and Luca Antonio Ricci. 2010. “The Inflation-Output Trade-off with Downward Wage Rigidities,” NBER Working Paper No. 15762.
Berkmen, Pelin, Gaston Gelos, Robert Rennhack and James Walsh. 2009. “The Global Financial Crisis: Explaining Cross-Country Differences in Output Impact,” IMF Working Paper No. 09/280.
Bernanke, Ben. 2000. “Japanese Monetary Policy: A Case of Self-Induced Paralysis,” paper presented at the ASSA meetings, Boston, MA, January 9, 2000.
Blanchard, Olivier and Jordi Galí. 2007. “Real Wage Rigidities and the New Keynesian Model,” Journal of Money, Credit and Banking, Supplement to Vol. 39, No. 1, pp. 35-65.
Blanchard, Olivier. 2009. “The Crisis: Basic Mechanisms and Appropriate Policies,” IMF Working Paper 09/80.
Blanchard, Olivier and Hamid Faruqee. 2010. “The Impact Effect of the Crisis on Emerging Market Countries,” mimeo.
Blanchard, Olivier, Giovanni dell’Ariccia and Paolo Mauro. 2010. “Rethinking Macroeconomic Policy”, IMF Staff Position Note 10/03.
Brito, Ricardo D. and Brianne Bystedt. 2009. “Inflation Targeting in Emerging Economies: Panel Evidence,” Journal of Development Economics, forthcoming.
Broda, Christian. 2004. “Terms of Trade and Exchange Rate Regimes in Developing Countries,” Journal of International Economics, vol. 63, pp. 31-58.
Buiter, Willem. 2009. “The Unfortunate Uselessness of Most ’State of the Art’ Academic Monetary Economics,” in http://www.voxeu.org/index.php?q=node/3210
Calvo, Guillermo A. and Carmen M. Reinhart. 2002. “Fear of Floating,” Quarterly Journal of Economics, v. 107(2,May), pp. 379-408.
Carson, Carol S., Charles Enoch and Claudia Dziobek. 2002. “Statistical Implications of Inflation Targeting,” International Monetary Fund.
Decressin, Jorg and Douglas Laxton. 2009. “Gauging Risks for Deflation,” IMF Staff Position Note, SPN/09/01.
Fernández, Carmen, Eduardo Ley, and Mark F. J. Steel, “Model Uncertainty in Cross-Country Growth Regressions,” Journal of Applied Econometrics, 16 (2001), 563-576.
Fisher, Irving. 1933. “The Debt-Deflation Theory of Great Depressions,” Econometrica, vol. 1, No. 4 (Oct., 1933), pp. 337-357
Ghosh, Atish R., Marcos Chamon, Christopher Crowe, Jun I. Kim, and Jonathan D. Ostry. 2009. “Coping with the Crisis: Policy Options for Emerging Market Countries,” IMF Staff Position Note 09/08.
Gonçalves, Carlos Eduardo and João Salles. 2008. “Inflation Targeting in Emerging Economies: What Do the Data Say?” Journal of Development Economics, vol. 85, pp. 312-318.
Edwards, Sebastian and Eduardo Levy Yeyati. 2005. “Flexible exchange rates as shock absorbers,” European Economic Review, vol. 49, pp. 2079-2105.
Friedman, Charles and Douglas Laxton. 2009. “Why inflation targeting?” IMF Working Paper 09/86.
Habermeier , Karl, İnci Ötker-Robe, Luis Jacome, Alessandro Giustiniani, Kotaro Ishi, David Vávra, Turgut Kışınbay, and Francisco Vazquez. 2009. “Inflation Pressures and Monetary Policy Options in Emerging and Developing Countries: A Cross Regional Perspective,” IMF Working Paper WP/09/1.
Eggertsson, Gauti and Michael Woodford. 2003. “The Zero Bound on Interest Rates and Optimal Monetary Policy,” Brookings Papers on Economic Activity, Vol. 2003, No. 1 (2003), pp. 139-211.
Hadi, Ali S., 1992, “Identifying Multiple Outliers in Multivariate Data,” Journal of the Royal Statistical Society, Ser. B, 56.
Ilzetzki, Ethan, Carmen Reinhart and Kenneth Rogoff. 2008. “Exchange Rate Arrangements into the 21st Century: Will the Anchor Currency Hold?”, mimeo.
Lane, Philip R. and Gian Maria Milesi-Ferretti. 2010. “The Cross-Country Incidence of the Global Crisis,” CEPR Discussion Paper No. 7954.
Mendoza, E.G. 1995. “The Terms of Trade, the Real Exchange Rate, and Economic Fluctuations,” International Economic Review, vol. 36, pp. 101-137.
Roger, Scott. 2009. “Inflation Targeting at 20: Achievements and Challenges,” IMF Working Paper 09/236.
Romer, David. 2006. “Advanced Macroeconomics”, McGraw-Hill: Irwin, New York.
Stiglitz, Joseph. 2008. “The Failure of Inflation Targeting,” in http://www.voxeu.org/index.php?q=node/2549 Stone, Mark, Scott Roger, Seiichi Shimizu, Anna Nordstrom, Turgut Kisinbay, and Jorge Restrepo. 2009. IMF Occasional Paper 267, mimeo.
Tsangarides, Haralambos. 2010. “Crisis and Recovery: Role of the Exchange Rate Regime in Emerging Market Countries,” IMF Working Paper 10/242.
Zeugner, Stefan, “Bayesian Model Averaging with BMS,” 2010, mimeo.