2000-01 EC: The Effect of Inflation Targets on the Level of Expected Inflation in Five Countries (working paper)
published: 2000 | Research publication | Working Paper - Economics
ABSTRACT: Did inflation targets reduce the level of expected inflation in Australia, Canada, New Zealand, Sweden and the United Kingdom? Using individual responses in surveys of professional forecasters to directly measure expected inflation, inflation targets are found to reduce the level of expected inflation below the level of expected inflation predicted by past inflation and unemployment, information variables known to forecasters. Ongoing recessions and recent inflation declines reduce expected inflation but inflation targets are associated with a further reduction in expected inflation. This effect is very strong in New Zealand and very weak in Sweden. In Canada, Australia and the United Kingdom, inflation targets do not initially reduce expected inflation but have a strong effect after 3 years of targets.
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revised Mar 7/05