Date of Award
Honors Thesis (Colby Access Only)
Colby College. Economics Dept.
Macroeconomic theory dictates contemporaneous growth between output and inflation, yet recent evidence suggests a divergence between the two. In countries with explicit inflation targeting regimes, such a change requires unorthodox monetary policy to simultaneously address stagnating growth while adhering to an inflation target to uphold the central bank’s credibility. This paper examines if, in fact, a decoupling of inflation and output exists, and the responsiveness of central banks with inflation targets to each using a regression of the Taylor Rule. The results present a case for a heightened response to output concerns after 2008, as well as a lessened response to inflation from central banks with inflation targets in OECD countries. These findings imply a more flexible interpretation of inflation targets in the wake of a weakened relationship between output growth and inflation, with wide-ranging implications for future monetary policy.
inflation targeting, financial crisis, output, inflation
Recommended CitationNewman, Rebecca, "The Post-Crisis Relevance of Inflation Targeting" (2013). Honors Theses. Paper 669.
Colby College theses are protected by copyright. They may be viewed or downloaded from this site for the purposes of research and scholarship. Reproduction or distribution for commercial purposes is prohibited without written permission of the author.