Is inflation targeting dead? Central Banking After the Crisis - Vox

Is inflation targeting dead? Central Banking After the CrisisThe performance of inflation-targeting regimesThe global trend towards lower and more stable inflation since the 1980s has beenaccompanied by the growing popularity of inflation targeting frameworks. Over thepast quarter century, about two dozen advanced- and emerging-market central bankshave explicitly adopted a formal inflation target. Others have implemented frameworksthat embody key elements of inflation targeting.When measured by common indicators of macroeconomic performance, inflationtargetingregimes compare favourably with others, especially in the case of emergingmarketeconomies. Table 1 shows that, since 2000 and in particular during the periodincluding the global financial Crisis beginning in 2007, inflation, real-GDP growth andshort-term inflation expectations have all been considerably less volatile in emergingmarketeconomies with explicit inflation targeting than in those without 1 .Table 1. Macroeconomic performance: explicit inflation targeters (IT) vs otherregimes 1 Short-term inflationActual inflationOutput growthexpectations2000–06 2007–12 2000–06 2007–12 2000–06 2007–12Mean Stdev Mean Stdev Mean Stdev Mean Stdev Mean Stdev Mean StdevAdvanced: IT 2.20 1.38 2.30 1.60 2.12 0.24 2.25 0.51 2.99 1.63 1.26 2.53Adv: other 1.47 0.70 1.41 1.59 1.44 0.24 1.28 0.55 1.97 1.66 0.40 3.38EMEs: IT 4.14 1.19 4.50 1.76 4.29 0.73 4.19 0.54 4.51 1.80 3.65 3.85EMEs: other 7.29 3.01 5.25 2.72 7.33 2.69 4.65 1.20 7.13 4.50 4.13 5.53Notes: Simple average of economies in the country groups. Advanced inflation targeters: Australia, Canada, New Zealand,Norway, Sweden and the UK. Other advanced: Denmark, the Eurozone, Japan, Switzerland and the US. EME inflationtargeters: Brazil, Chile, Colombia, the Czech Republic, Hungary, Indonesia, Israel, Korea, Mexico, Peru, the Philippines,Poland, Romania, South Africa, Thailand and Turkey (but Indonesia, Romania and Turkey are not considered inflationtargeters before 2006). Other EMEs: Argentina, Bulgaria, China, Croatia, Hong Kong SAR, India, Latvia, Lithuania,Malaysia, Russia and Singapore.1 Average inflation and output growth calculations are based on annualised quarter-on-quarter percentage changes ofseasonally adjusted consumer prices (wholesale prices for India) and real GDP. Short-term inflation expectations arecalculated based on moving weighted average of Consensus forecasts current and following year annual inflation forecasts.Sources: © Consensus Economics; Datastream; national data; BIS calculations.1 The division between those that target inflation and those that do not is based on self-identification.114