Explicit Inflation Objectives and Macroeconomic Outcomes

64 Pages Posted: 9 Dec 2004

See all articles by Andrew T. Levin

Andrew T. Levin

affiliation not provided to SSRN

Fabio M. Natalucci

U.S. Federal Reserve Board - Division of Monetary Affairs

Jeremy Piger

University of Oregon - Department of Economics

Date Written: August 2004

Abstract

We find evidence that adopting an explicit inflation objective plays a role in anchoring long-run inflation expectations and in reducing the intrinsic persistence of inflation. For the period 1994-2003, private-sector long-run inflation forecasts exhibit significant correlation with lagged inflation for a number of industrial economies, including the United States. In contrast, this correlation is largely absent for the five countries that maintained explicit inflation objectives over this period, indicating that these central banks have been reasonably successful in delinking expectations from realized inflation. We also show that the null hypothesis of a random walk in core CPI inflation can be clearly rejected for four of these five countries, but not for most of the other industrial countries. Finally, we provide some evidence concerning the initial effects of the adoption of explicit inflation objectives in a number of emerging-market economies.

Keywords: Inflation expectations, Consensus Forecasts, inflation persistence

JEL Classification: E31, E52, E58

Suggested Citation

Levin, Andrew and Natalucci, Fabio Massimo and Piger, Jeremy M., Explicit Inflation Objectives and Macroeconomic Outcomes (August 2004). Available at SSRN: https://ssrn.com/abstract=569630

Andrew Levin

affiliation not provided to SSRN

Fabio Massimo Natalucci

U.S. Federal Reserve Board - Division of Monetary Affairs ( email )

20th and C Street, N.W.
Washington, DC 20551
United States
202-452-3052 (Phone)
202-736-5638 (Fax)

Jeremy M. Piger (Contact Author)

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
272
Abstract Views
2,039
rank
138,617
PlumX Metrics