Inflation Targeting and Inflation Persistence
Abstract: Inflation targeting is often considered the most appropriate monetary policy framework as a strategy dealing with the persistence of inflation fluctuations. It is expected that the adoption of this monetary regime could reduce inflation and inflation volatility. In this paper, a theoretical literature on inflation persistence was established by introducing a Taylor Rule for monetary policy into a model. We investigated the changes in the time series properties of inflation in seven countries that introduced inflation targets. The findings suggested that the adoption of“IT”is an ideal monetary regime for stabling economies growth and, in addition to reducing inflation persistence, can drive inflation down to internationally acceptable levels.
Keywords: Taylor Rule Inflation Targeting Phillips Curve Inflation Persistence