Endogeneity of Inflation Target

Soyoung Kim and Geunhyung Yim ()
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Geunhyung Yim: Economic Research Institute, The Bank of Korea

No 2016-18, Working Papers from Economic Research Institute, Bank of Korea

Abstract: Under inflation targeting, central banks set an inflation target in advance and then try to make an actual inflation hit the target. However, central banks may have an incentive to adjust the target to actual inflation rates such as past inflation rates, to make the actual inflation rate close to the target. This paper examines this issue of "endogeneity of inflation target" by using various empirical methods with the sample of 19 inflation targeting countries. Empirical results show that an inflation rate has significantly positive effect on the inflation target of the next period. Empirical results further suggest that this endogeneity of the inflation target is found more strongly in central banks with low credibility or weak performance than in central banks with high credibility or strong performance.

Keywords: Inflation targeting; Inflation rate; Inflation target; Endogeneity (search for similar items in EconPapers)
JEL-codes: E31 E58 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2016-12-19
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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http://papers.bok.or.kr/RePEc_attach/wpaper/english/wp-2016-18.pdf Working Paper, 2016 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:bok:wpaper:1618

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