In the last decades, many developing countries abandoned their existing policy regimes and adopted inflation targeting (IT) by which they aimed to control inflation through the use of policy interest rates. During the period before the crisis, most of these countries experienced large...

We analyze the impact of price stability-oriented monetary strategies (inflation targeting - IT - and constraining exchange rate arrangements) on inflation persistence using a time-varying coefficients framework in a panel of 68 countries (1993-2013). We show that explicit IT has a stronger...

This paper considers the performance of average inflation targeting (AIT) policy in a New Keynesian model with adaptive learning agents. Our analysis raises concerns regarding robustness of AIT when agents have imperfect knowledge. In particular, the target steady state can be locally unstable...

Inflation targeting is implemented in different ways – most often by adopting point targets, by having tolerance bands around a point target, or by specifying target ranges. Using data for 20 economies, this paper tests whether the various target types affect the anchoring of inflation...

We analyse the effectiveness of optimal simple and implementable monetary and fiscal policy rules in stabilising economic activity, inflation and government debt in face of an occasionally binding lower bound on the nominal interest rate in a New Keynesian model. We show that, within the...

Low inflation hit the Japanese economy shortly after the burst of the bubble in stocks and real estate in 1991 and has haunted the domestic economy ever since. The bubbles were partly attributable to prolonged monetary easing in the second half of 1980s, which was conducted to increase domestic...

In this paper we systematically evaluate how central banks respond to inflation deviations from target. We present a stylized New Keynesian model in which agents' inflation expectations are sensitive to inflation deviations from target. To (re-)establish credibility, optimal monetary policy...

This paper employs stochastic simulations of a small structural rational expectations model to investigate the consequences of the zero bound on nominal interest rates. We find that if the economy is subject to stochastic shocks similar in magnitude to those experienced in the U.S. over the...

In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained...