skip to primary navigationskip to content
 

CF Weekly Workshop - Did inflation targeting make a difference during the financial crisis? by Jonathan Smith

When Jun 05, 2012
from 05:00 PM to 06:00 PM
Where Sidgwick Room, Newnham College
Contact Name
Add event to calendar vCal
iCal

Did inflation targeting make a difference during the financial crisis? by Jonathan Smith

Abstract:

This paper seeks to explore whether inflation targeters (ITers) fared better than non-ITers in the largest recession since the ‘Great Depression’. Early evidence by Roger (2010) and Carvalho-Filho (2011) has been rather positive in this regard; suggesting superior growth performance and lower market perceptions of risk. However, these papers do not formally address the sample selection issue that has plagued the inflation targeting (IT) literature. This paper therefore aims to contribute to the literature by taking IT to be a treatment. We employ a two-pronged approach to the analysis: borrowing from the program evaluation literature, we employ propensity score matching combined with differences-in-differences. Then to understand time-varying performance during the crisis, we also employ a panel fixed effects model with country and time-fixed effects, controlling for possible time-varying heterogeneity via instrumental variables (IV). We find that ITers did perform better in the crisis, with smaller output contractions and smaller increases in 5-year Sovereign CDS spreads. However, we only find weak evidence for superior consumption growth. Turning to possible drivers behind this performance, we find that ITers cut nominal policy rates by more (and these translated into real cuts), were more successful in avoiding deflationary pressures, experienced larger depreciations in their real exchange rate, and for emerging economies (EMEs) had less need for fiscal stimulus. Therefore, we interpret this superior performance as a culmination of factors that stem from a superior ability to anchor inflation expectations.

« April 2019 »
April
MoTuWeThFrSaSu
1234567
891011121314
15161718192021
22232425262728
2930

RSS Feed Latest news

Winners of the Best Student Paper Award 2018 announced

Aug 21, 2018

Cambridge Finance is proud to announce the winners of the Best student Paper Award for 2017-2018

View all news

Upcoming events

Cambridge Finance Workshop - Alex Frino

May 02, 2019

Room W4.03, Cambridge Judge Business School

Cambridge Finance Workshop - Ernst-Ludwig von Thadden

May 16, 2019

No 10 North (lower ground)

Cambridge Finance Workshop - Mara Faccio

May 30, 2019

Room W4.03 Cambridge Judge Business School

Previous events

Upcoming events