The more things change . . . inflation targeting and central bank policy

2006 ◽  
Vol 28 (4) ◽  
pp. 551-558 ◽  
Author(s):  
LOUIS-PHILIPPE ROCHON
Keyword(s):  
Central Bank ◽  
Inflation Targeting

scholarly journals THE EFFECT OF SBI RATE THROUGH FINANCIAL SYSTEM TO ECONOMIC GROWTH OF INDONESIA

2007 ◽  
Vol 8 (4) ◽  
Author(s):  
Donni Fajar Anugrah
Keyword(s):  
Economic Growth ◽  
New Zealand ◽  
Central Bank ◽  
Inflation Targeting ◽  
Financial System

Bank Indonesia menerapkan Inflation Targeting Framework (ITF) sejak tahun 2000 dengan menggunakan base money sebagai alat kebijakan moneternya. Hasil penerapan framework ini kurang optimal jika melihat inflasi aktual yang tidak selalu berada dalam kisaran target yang telah diumumkan. Di sisi lain, beberapa negara yang juga menerapkan ITF, seperti New Zealand, telah berhasil mencapai tingkat inflasi yang rendah sesuai dengan target yang diumumkan. Mereka menggunakan suku bunga sebagai alat kebijakan moneter dalam penerapan ITF. Oleh karena itu, Bank Indonesia memutuskan untuk menggunakan suku bunga SBI sebagi alat kebijakan untuk mencapai inflasi yang rendah.Permasalahan yang perlu mendapat perhatian yaitu seberapa besar efek dari kebijakan ini terhadap pertumbuhan ekonomi secara bertahap. Dalam penerapannya, suku bunga SBI akan mempengaruhi sistem keuangan melalui suku bunga pasar, seperti suku bunga PUAB dan kredit. Secara teoritis kedua suku bunga pasar terseut dapat mempengaruhi konsumsi dan investasi. Penelitian ini akan lebih difokuskan pada efek suku bunga pada konsumsi dan investasi yang pada akhirnya berdampak pada tingkat pertumbuhan ekonomi.Dengan menggunakan pendekatan Joahnsen, akan dapat dijelaskakn hubungan jangka panjang antar variabel dan menghasilakn ECM yang digunakan dalam model jangka pendeknya. Hasil penelitian menunjukkan bahwa suku bunga dan konsumsi memiliki hubungan negatif hanya di jangka pendek. Sedangkan suku bunga dengan investasi berhbungan negatif dalam jangka panjang. Hasil akhir menunjukkan peningkatan  suku bunga akan berakibat pada penurunan pertumbuhan ekonomi.Keywords: central bank, sbi rate, consumption, investmentm economic growth, inflation targetingJEL: E21, E52, E58, F43

Central bank transparency, inflation targeting and monetary policy: a panel data approach

2018 ◽  
Vol 45 (6) ◽  
pp. 1159-1174 ◽  
Author(s):  
Gabriel Caldas Montes ◽  
Cristiane Gea
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Panel Data ◽  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Inflation Targeting ◽  
Content Type ◽  
Central Bank Transparency ◽  
Policy Interest

Purpose The evidence concerning the effects of the inflation targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates is not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? The purpose of this paper is to contribute to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy. Design/methodology/approach The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries. Findings Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries. Practical implications The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy. Originality/value Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; the central bank transparency index that is used has never been utilized in this sort of analysis; and the study uses panel data methodology, and compares the results between different samples.

Analyzing the consistency of the dynamics of the Russian financial capital components

2021 ◽  
Vol 27 (4) ◽  
pp. 851-874
Author(s):  
Valerii V. SMIRNOV
Keyword(s):  
Central Bank ◽  
Growth Rates ◽  
Inflation Targeting ◽  
Central Government ◽  
Systems Approach ◽  
Financial Capital ◽  
Russian Government ◽  
Public Authorities ◽  
Goods And Services ◽  
Speculative Behavior

Subject. The article discusses financial capital issues. Objectives. The study determines the consistency of the dynamics of the Russian financial capital components. Methods. The study is based on the systems approach and methods of statistical, neural network and cluster analysis. Results. I analyze the dynamics of rates, such as USD/RUB, RGBI, RTSI, SBER, IMOEX, and discovered the speculative behavior of financial capital holders (IMOEX, USD/RUB, SBER) in the domestic (RGBI) and external (RTSI) market. Analyzing the importance of growth rates of GDP and its constituents, I found the State prioritized the regulation of the GDP deflator (The Central Bank – inflation targeting), considering a growth in governmental expenditures and the decreased importance of growth rates of GDP and households’ consumption expenditures, as the import of goods and services gets more important. The high importance of rates of growth in the export of goods and services is identical to Australia, Estonia and Columbia. Corporate relationships of the Central Bank and financial corporations focus on the regulation of money supply and currency outside financial corporations and internal claims. The relationships strengthen as the monetary policy get more concentrated on net claims to the central government and inflation targeting. Conclusions and Relevance. The scope of consistency of trends in the Russian financial capital components allows public authorities to regulate a growth in the corporate relations of the Central Bank and financial corporations in order to curb the speculative behavior of financial capital holders. The findings hereof contribute to the knowledge and competence of officials of the Russian Government and the Federal Antimonopoly Services with respect to systemic decisions on control over financial transactions.

scholarly journals Why is inflation targeting adopted?

2020 ◽  
Vol 12 (1) ◽  
pp. 56
Author(s):  
Yutaka Kurihara
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Central Bank ◽  
Inflation Targeting ◽  
Developed Countries ◽  
The Other ◽  
Other Hand ◽  
Central Bank Credibility

Since the early 1990s, inflation targeting (IT) has been conducted in many countries and the number of the countries has been increasing rapidly. The outcomes of adopting IT has been discussed, however, the incentives of adopting IT is not fully examined. This study focuses on this issue empirically. The results are clearly divided into two types of countries. In developed countries, budget/GDP ratio, central bank credibility, exchange rate stability, and openness of the economy are deterministic elements of adopting IT, however interestingly, inflation itself does not play any roles of adopting IT. On the other hand, only inflation is the deterministic element of adopting IT in developing countries. Other elements, that are deterministic elements in developed countries, do not any effects on introducing IT. Moreover, countries would not like to limit the scope of policies when the economy’s openness is high.

scholarly journals Coordinating expectations through central bank projections

2020 ◽  
Author(s):  
Fatemeh Mokhtarzadeh ◽  
Luba Petersen
Keyword(s):  
Central Bank ◽  
Rational Expectations ◽  
Inflation Targeting ◽  
Aggregate Stability ◽  
Central Banks ◽  
Output Gap ◽  
Forecast Errors ◽  
Market Participants ◽  
Wide Range ◽  
Ex Ante

AbstractCentral banks are increasingly communicating their economic outlook in an effort to manage the public and financial market participants’ expectations. We provide original causal evidence that the information communicated and the assumptions underlying a central bank’s projection can matter for expectation formation and aggregate stability. Using a between-subject design, we systematically vary the central bank’s projected forecasts in an experimental macroeconomy where subjects are incentivized to forecast the output gap and inflation. Without projections, subjects exhibit a wide range of heuristics, with the modal heuristic involving a significant backward-looking component. Ex-Ante Rational dual projections of the output gap and inflation significantly reduce the number of subjects’ using backward-looking heuristics and nudge expectations in the direction of the rational expectations equilibrium. Ex-Ante Rational interest rate projections are cognitively challenging to employ and have limited effects on the distribution of heuristics. Adaptive dual projections generate unintended inflation volatility by inducing boundedly-rational forecasters to employ the projection and model-consistent forecasters to utilize the projection as a proxy for aggregate expectations. All projections reduce output gap disagreement but increase inflation disagreement. Central bank credibility is significantly diminished when the central bank makes larger forecast errors when communicating a relatively more complex projection. Our findings suggest that inflation-targeting central banks should strategically ignore agents’ irrationalities when constructing their projections and communicate easy-to-process information.

scholarly journals The term structure of interest rates and inflation forecast targeting

2011 ◽  
Vol 12 (2) ◽  
pp. 162-179
Author(s):  
Eric Schaling ◽  
Willem Verhagen ◽  
Sylvester Eiffinger
Keyword(s):  
Interest Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Term Structure ◽  
Inflation Targeting ◽  
Nominal Interest Rate ◽  
Term Spread ◽  
State Of The Economy ◽  
Output Persistence

This paper examines the implications of the expectations theory of the term structure of interest rates for the implementation of inflation targeting. We show that the responsiveness of the central bank’s instrument to the underlying state of the economy is increasing in the duration of the long-term bond.  On the other hand, an increase in duration will make long-term inflationary expectations - and therefore also the long-term nominal interest rate - less responsive to the state of the economy. The extent to which the central bank is concerned with output stabilisation will exert a moderating influence on the central bank’s response to leading indicators of future inflation. However, the effect of an increase in this parameter on the long-term nominal interest rate turns out to be ambiguous. Next, we show that both the sensitivity of the nominal term spread to economic fundamentals and the extent to which the spread predicts future output, are increasing in the duration of the long bond and the degree of structural output persistence. However, if the central bank becomes relatively less concerned about inflation stabilisation the term spread will be less successful in predicting real economic activity.

scholarly journals DOES INFLATION TARGETING MATTER? AN EXPERIMENTAL INVESTIGATION

2016 ◽  
Vol 22 (2) ◽  
pp. 362-401 ◽  
Author(s):  
Camille Cornand ◽  
Cheick Kader M'baye
Keyword(s):  
Central Bank ◽  
Economic Activity ◽  
Laboratory Experiments ◽  
Inflation Targeting ◽  
Human Subjects ◽  
New Keynesian ◽  
Macroeconomic Performance ◽  
Inflation Target ◽  
Keynesian Model ◽  
Inflation Stabilization

We use laboratory experiments with human subjects to test the relevance of different inflation-targeting regimes. In particular and within the standard New Keynesian model, we evaluate to what extent communication of the inflation target is relevant to the success of inflation targeting. We find that if the central bank cares only about inflation stabilization, announcing the inflation target does not make a difference in terms of macroeconomic performance compared with a standard active monetary policy. However, if the central bank also cares about the stabilization of economic activity, communicating the target helps to reduce the volatility of inflation, interest rate, and output gap, although their average levels are not affected. This finding is consistent with the theoretical literature and provides a rationale for the adoption of a flexible inflation-targeting regime.

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