IMF Working Papers

Inflation Targeting and Output Growth: Empirical Evidence for the European Union

May 1, 2005

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Format: Chicago

International Monetary Fund. "Inflation Targeting and Output Growth: Empirical Evidence for the European Union", IMF Working Papers 2005, 089 (2005), accessed April 21, 2025, https://doi.org/10.5089/9781451861082.001

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper evaluates the performance of two alternative policy rules, a forward-looking rule and a spontaneous adjustment rule, under alternative inflation targets, in terms of output losses in a macroeconomic model, using European Union data. The simulations suggest that forward-looking rules contribute to macroeconomic stability and monetary policy credibility, and that a positive inflation target, as opposed to zero inflation, leads to higher and less volatile output. These results are robust to changes in the specification of the model and time period. The same methodology applied to individual countries supports country-specific flexible inflation targeting.

Subject: Estimation techniques, Inflation, Inflation targeting, Output gap, Real interest rates

Keywords: Inflation rate, WP

Publication Details

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