Monetary policy regime and survival of price shocks in inflation targeting regime: does the level of countries‘ development matter?

Kekaye, Tsholofelo and Bonga-Bonga, Lumengo (2024): Monetary policy regime and survival of price shocks in inflation targeting regime: does the level of countries‘ development matter?

Abstract

This study expands on the existing literature by investigating the impact of Inflation Targeting (IT) policies on the duration of High Inflation Episodes (HIEs) in both developed and emerging economies. Utilizing Survival Analysis, the study evaluated HIEs' lengths before and after IT policy implementation across 26 countries from 2003 to 2023. The findings reveal that IT policies significantly reduce the duration of HIEs. Kaplan-Meier estimates indicate a clear decline in ongoing HIE probability over time, with a more pronounced reduction in emerging economies. Statistical tests like the Log-Rank and Wilcoxon tests provide robust evidence supporting the effectiveness of IT policies, showing significant differences in HIE durations pre- and post-IT implementation. This study also addresses the literature gap by distinguishing the differential effects of IT policies based on the developmental status of countries, demonstrating their efficacy in enhancing price stability across diverse economic contexts.

• Item Type: MPRA Paper
• Language: English
• Keywords: monetary policy; inflation targeting; survival analysis
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies

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