TY  - JOUR
AU  - Cecchetti,Stephen G.
AU  - Ehrmann,Michael
TI  - Does Inflation Targeting Increase Output Volatility?  An International Comparison of Policymakers' Preferences and Outcomes
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 7426
PY  - 1999
Y2  - December 1999
UR  - http://www.nber.org/papers/w7426
L1  - http://www.nber.org/papers/w7426.pdf
N1  - Author contact info:
Stephen G. Cecchetti
Monetary and Economic Department
Bank for International Settlements
Centralbahnplatz 2
4002 Basel
SWITZERLAND
Tel: +41 61 280 8350
Fax: +41 61 280 9113
E-Mail: stephen.cecchetti@bis.org

Michael Ehrmann
European Central Bank
Postfach 16 03 19
D-60066 Frankfurt am Main
GERMANY
E-Mail: michael.ehrmann@ecb.int
AB  - Aggregate shocks that move output and inflation in opposite directions create a tradeoff between output and inflation variability, forcing central bankers to make a choice. Differences in the degree of accommodation of shocks lead to disparate variability outcomes, revealing national central banker's relative weight on output and inflation variability in their preferences.  We use estimates of the structure of 23 industrialized and developing economies, including nine that target inflation explicitly, together with the realized output and inflation patterns in those countries, to infer the degree of policymakers' inflation variability aversion.  Our results suggest that both countries that introduced inflation targeting, and non-targeting European Union countries approaching monetary union, increased their revealed aversion to inflation variability, and likely suffered most increases in output volatility as a result.
ER  -