LIU Donghua:Can Inflation Targeting Stabilize Inflation Expectations?

Abstract：Since the early 1990s, Inflation Targeting (IT) has been adopted by an increased number of central banks. Some research literatures suggested that IT can stabilize the inflation expectations. This paper focuses on all countries that have adopted Inflation Targeting to estimate expected inflation and its volatility by using the UC-SV model, then examines the relationship between IT and the volatility of expected inflation by DID method. The research concluded that IT has played an important role in stabilizing inflation expectations in emerging market countries. Nowadays China is in urgent needs to transform its monetary policy, therefore, this conclusion will be useful for China's policy making.

Key words： Inflation Targeting   Inflation Expectation   UC-SV Model   Difference in Difference

source:Finance & Trade Economics ,No.7,2014