Has the Adoption of Inflation Targeting Represented a Regime Switch? Empirical Evidence from Sweden
15 Pages Posted: 25 Jul 2009
Date Written: June 2009
Abstract
We study whether the adoption of inflation targeting (IT) has constituted a regime switch in Sweden using a Markov-Switching VAR technique. We assess, based on two different specifications, the relative preference for inflation in the monetary reaction function and the capacity of IT to reduce uncertainty through the anchoring of expectations. We show at the policy level that IT has constituted a switch to a lower focus on inflation, in sharp contrast with the usual argument that has been put forth by IT opponents. At the environment level, IT adoption can be shown to have reduced uncertainty. Last, counterfactuals suggest IT provides higher monetary policy leeway.
Keywords: monetary policy, inflation targeting, MSVAR, regime-switching, counterfactuals, Sweden
JEL Classification: E52, E58
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
One Decade of Inflation Targeting in the World: What Do We Know and What Do We Need to Know?
-
International Experiences with Different Monetary Policy Regimes
-
Inflation Targeting: Lessons from Four Countries
By Frederic S. Mishkin and Adam S. Posen
-
Inflation Targeting: Lessons from Four Countries
By Adam S. Posen and Frederic S. Mishkin
-
From Monetary Targeting to Inflation Targeting: Lessons from Industrialized Countries