Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/175079 
Year of Publication: 
2018
Series/Report no.: 
DIW Discussion Papers No. 1721
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We study the characteristics of inflation targeting as a shock absorber, using quarterly data for a large panel of countries. To overcome an endogeneity problem between monetary regimes and the likelihood of crises, we propose to study large natural disasters. We find that inflation targeting improves macroeconomic performance following such exogenous shocks. It lowers inflation, raises output growth, and reduces inflation and growth variability compared to alternative monetary regimes. This performance is mostly due to a different response of monetary policy and fiscal policy under inflation targeting. Finally, we show that only hard but not soft targeting reaps the fruits: deeds, not words, matter for successful monetary stabilization.
Subjects: 
Monetary Policy
Central Banks
Monetary Regimes
Dynamic Effects
JEL: 
E42
E52
E58
Document Type: 
Working Paper

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