Heterogeneous Response of Disaggregate Inflation to Monetary Policy Regime Change: What Can Be Learned from Canada’s Adoption of Inflation Targeting?

The paper examines the impact of oil price shocks on inflation, as well as the impact of the choice of the monetary policy regime on the strength of this influence. We used dynamic models on panel data for the countries of the world for the period from 2000 to 2017. It is shown that mainly the impact of changes in oil prices on inflation is carried out through the channel of exchange rate. The paper demonstrates the influence of the transition to inflation targeting on the nature of the relationship between oil price shocks and inflation. This effect is asymmetrical: during periods of rising oil prices, inflation targeting reduces the effect of the transfer of oil prices, limiting negative effects of shock. During periods of decline in oil prices, this monetary policy regime, in contrast, contributes to a stronger transfer, helping to reduce inflation.

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The influence of inflation targeting on the pass-through effect of the exchange rate

Voprosy Ekonomiki ◽

10.32609/0042-8736-2018-11-70-84 ◽

2018 ◽

pp. 70-84

Author(s):

Ph. S. Kartaev ◽

Yu. I. Yakimova

Keyword(s):

Developing Countries ◽

Monetary Policy ◽

Exchange Rate ◽

Inflation Targeting ◽

Policy Regime ◽

Short And Long Term ◽

The Exchange Rate ◽

Pass Through ◽

The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

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Pre-conditions for Inflation Targeting in an Emerging Economy: The Case of India

Global Economy Journal ◽

10.1515/gej-2012-0014 ◽

2013 ◽

Vol 13 (1) ◽

pp. 89-108 ◽

Cited By ~ 4

Author(s):

Ankita Mishra

Keyword(s):

Monetary Policy ◽

Inflation Targeting ◽

Emerging Economy ◽

Policy Option ◽

Target Range ◽

Policy Regime ◽

Indian Economy ◽

Major Threat ◽

Supply Shocks

This article looks at the preconditions that an emerging economy needs to fulfill, before it can adopt inflation targeting as a monetary policy regime. The study is conducted using the Indian economy as a case study. We conduct sector-wise analysis of the Indian economy to evaluate the independence of India’s monetary policy from fiscal, external, structural and financial perspectives. Dominance from any of these sectors may divert monetary policy from the objective of maintaining price stability in the economy. Our analysis suggests that among the four dominance issues, the issue of “structural dominance” is the most acute for India. Supply shocks, hitting the economy due to structural bottlenecks, pose a major threat to the independent conduct of monetary policy. This study concludes that inflation band targeting with a wide target range would be a feasible monetary policy option for India.

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An Evaluation of Monetary Targeting Regimes

National Institute Economic Review ◽

10.1177/002795010017400114 ◽

2000 ◽

Vol 174 ◽

pp. 105-113 ◽

Cited By ~ 17

Author(s):

Ray Barrell ◽

Karen Dury

Keyword(s):

Monetary Policy ◽

Inflation Targeting ◽

Price Level ◽

Policy Framework ◽

Policy Regime ◽

Feedback Mechanisms ◽

Policy Regimes ◽

Monetary Targeting ◽

Over Time ◽

Monetary Policy Framework

The policy regime in Europe has put the economy on ‘auto-pilot’. We investigate different designs for the required feedback mechanisms. The uncertainty facing an economy depends on the pattern of shocks it faces, the response of the private sector to those shocks and also the policy reactions of the authorities. Two ‘ideal type’ policy regimes are investigated, and inflation targeting is compared to nominal aggregate targeting. In general it is suggested that targeting a nominal aggregate reduces the variability of the price level, and stabilises the price level more quickly over time. Inflation outcomes are also less variable for the Euro Area, and they are less asymmetric when a nominal aggregate is targeted. The new European fiscal framework requires that countries set deficit targets close to balance. We show that there is plenty of space for automatic stabilisers to work, but the room available depends in part on the monetary policy framework chosen.

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Does the high-frequency data is helpful for forecasting Russian inflation?

St Petersburg University Journal of Economic Studies ◽

10.21638/spbu05.2021.206 ◽

2021 ◽

Vol 37 (2) ◽

pp. 318-343

Author(s):

Dmitriy Tretyakov ◽

◽

Nikita Fokin ◽

Keyword(s):

Monetary Policy ◽

Central Bank ◽

High Frequency ◽

Inflation Targeting ◽

Low Frequency ◽

High Frequency Data ◽

Frequency Data ◽

Policy Regime ◽

The Future ◽

Forecasting Inflation

Due to the fact that at the end of 2014 the Central Bank made the transition to a new monetary policy regime for Russia — the inflation targeting regime, the problem of forecasting inflation rates became more relevant than ever. In the new monetary policy regime, it is important for the Bank of Russia to estimate the future inflation rate as quickly as possible in order to take measures to return inflation to the target level. In addition, for effective monetary policy, the households must trust the actions of monetary authorities and they must be aware of the future dynamics of inflation. Thus, to manage inflationary expectations of economic agents, the Central Bank should actively use the information channel, publish accurate forecasts of consumer price growth. The aim of this work is to build a model for nowcasting, as well as short-term forecasting of the rate of Russian inflation using high-frequency data. Using this type of data in models for forecasting is very promising, since this approach allows to use more information about the dynamics of macroeconomic indicators. The paper shows that using MIDAS model with weekly frequency series (RUB/USD exchange rate, the interbank rate MIACR, oil prices) has more accurate forecast of monthly inflation compared to several basic models, which only use low-frequency data.

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Interactions among Economic Ideas, Policies and Experience - The Establishment of Inflation Targeting in Canada, 1991-2001

Review of Economic Analysis ◽

10.15353/rea.v12i2.1693 ◽

2020 ◽

Vol 12 (2) ◽

pp. 133-165

Author(s):

David Laidler

Keyword(s):

Monetary Policy ◽

Inflation Targeting ◽

Inflation Rate ◽

Price Level ◽

Flexible Exchange Rate ◽

Money Growth ◽

Policy Regime ◽

Domestic Prices ◽

The Stability

In Canada, targeting the inflation rate was intended as a temporary measure during a transition to price-level stability, but became a well-established monetary policy regime in its own right. This paper analyses the role of the interaction of economic ideas with the experience generated by their application to policy in bringing about this outcome. In the following account, changing beliefs about the stability or otherwise of ongoing inflation, the capacity of a flexible exchange rate to create a vicious circle of depreciation and rising domestic prices, are emphasised, while ideas about the natural unemployment rate and money growth in influencing economic outcomes are also discussed. Today’s standard theoretical approach to modelling inflation targeting arrived on the scene only as the Canadian regime was becoming well established.

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Absence of price pressures checks central bank hawks

Emerald Expert Briefings ◽

10.1108/oxan-db222067 ◽

2017 ◽

Keyword(s):

Monetary Policy ◽

Regime Change ◽

Emerging Market ◽

Balance Sheet ◽

Policy Regime ◽

Bank Of Canada ◽

Content Type ◽

Full Swing ◽

The Impact ◽

First Time

Subject The impact of persistently low inflation on the pace of monetary policy 'regime change' in most countries. Significance The US Federal Reserve (Fed) published the minutes of its June 14 interest rate-setting meeting on July 5, showing increasing divisions over the pace of tightening as inflation eases. The Fed remains committed to starting to shrink its 4.5-trillion-dollar balance sheet this year, but there are disagreements over the timing of both the unwinding and further rate hikes. Subdued inflation is also constraining the ECB’s plans to withdraw its monetary stimulus, despite speculation about a ‘regime change’ in monetary policy driving the yield on the benchmark 10-year Bund to its highest point since January 2016. Impacts The yield on 10-year US Treasuries has risen since June but remains below its mid-March level when ‘reflation trading’ was in full swing. Emerging market bond funds are vulnerable to tighter policy and suffered outflows for the first time this year in the week ending July 5. The average world oil price has fallen by more than 10% since May to below 50 dollars a barrel amid concerns of a supply glut. The Bank of Canada may raise rates for the first time in nearly seven years on July 12, while the Fed chair will testify before Congress.

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Prospects of the Initiation of Inflation Targeting in RF

Voprosy Ekonomiki ◽

10.32609/0042-8736-2008-1-46-57 ◽

2008 ◽

pp. 46-57 ◽

Cited By ~ 3

Author(s):

A. Ulyukaev ◽

S. Drobyshevsky ◽

P. Trunin

Keyword(s):

Monetary Policy ◽

Exchange Rate ◽

Economic Performance ◽

Inflation Targeting ◽

Policy Regime ◽

Monetary Authorities ◽

The Exchange Rate

Bank of Russia officials have recently declared the possibility of switching to the inflation targeting regime in the medium run. The article considers benefits and shortcomings of monetary policy regime as well as the economic performance of the inflation targeting countries. The authors conclude that Russia now starts meeting conditions crucial for the success of inflation targeting. In such circumstances Russian monetary authorities have an opportunity to weaken the exchange rate goal in favor of the inflation goal.

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