Evaluating the Performance of Inflation Targeting on Asian Countries
Inflation targeting has been increasingly viewed as a recommended monetary policy framework. In this paper, the empirical results show that the initial inflation level and cost per point of disinflation are positively related. Second, the estimation results indicate that the length of the disinflation episode and cost per point of disinflation is also positively related. Thirdly, we find that the general argument that larger disinflation induces a smaller cost per point of disinflation is empirically valid. This paper also highlights the fact that the inflation targeting framework does not reduce the cost of disinflation in Asian countries. Finally, we argue that Japan is an appropriate country to reduce the cost of disinflation based on its current inflation condition. Also our estimation results cannot be generalized as if the country has already been experiencing a deflation for a long period of time, like Japan.
Keywords: Inflation Targeting, Disinflation, Trend Output, Sacrifice Ratio
Michael C. M. Ng
Lecturer (Economics), School of Arts and Social Sciences, The Open University of Hong Kong, Hong Kong China