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Wilfrid Laurier University School of Business & Economics
August 23, 2014
Canadian Excellence



2000-02 EC: The Effect of Inflation Targeting on the Behaviour of Expected Inflation: Evidence from an 11 Country Panel (working paper)

Johnson, D.

published: 2000 | Research publication | Working Paper - Economics

ABSTRACT:  Inflation targets were introduced in the 1990s in Australia, Canada, New Zealand, Sweden and the United Kingdom. The behaviour of expected inflation, measured using surveys of professional forecasters, in the five targeting countries is compared to the behaviour of expected inflation in six non-targeting countries: France, Germany, Italy, the Netherlands, Japan and the United States. Expected inflation in targeting countries falls significantly relative to that in non-targeting countries after controlling for country effects, year effects, ongoing inflation reduction and the level of unemployment. Inflation targets substantially reduce the level of expected inflation. Inflation targets do not reduce the variability of expected inflation. Both targeting and non-targeting countries experience unexpected disinflation.

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