The Macroeconomic Performance of the Inflation Targeting Policy : An Approach Based on the Evolutionary Co-spectral Analysis

This paper proposes a new methodology to check the economic performance of a monetary policy and in particular the inflation targeting policy (ITP). The main idea of this work is to consider the ITP as economically efficient when it generates a stable monetary environment. The latter is considered as stable when a long-run equilibrium exists to which the paths of economic variables (inflation rate, interest rate and GDP growth) converge. The convergence of the variables' paths implies that these variables are more predictable and implies a lower degree of uncertainty in the economic environment. To measure the degree of convergence between economic variables, we propose, in this paper, a dynamic time-varying variable presented in the frequency approach named cohesion. This variable is estimated from the evolutionary co-spectral theory as defined by Priestley and Tong (1973) and Priestley (1988-1996). We apply this theory to the measure of cohesion presented by Croux et al (2001) to obtain a dynamic time-varying measure. In the last step of the study, we apply the Bai and Perron test (1998-2003b) to determine the change in the cohesion path. The results show that the implementation of the ITP generates a high degree of convergence between economic series that implies less uncertainty into the monetary environment. We conclude that the inflation targeting generates a stable monetary environment. This result allows us to conclude that the ITP is relevant in the case of industrialized countries.Inflation Targeting ; Co-Spectral Analysis ; Cohesion, Stability Environment ; Economic Performance and Structural Change

The inflation Targeting effect on the inflation series: ANew Analysis Approach of evolutionary spectral analysis

In this work, we study the inflation targeting effect on the inflation dynamics in the case of four industrial countries. Our objective is to check whether the inflation targeting policy (ITP) has a significant impact on the change of the inflation path. We use a non-parametric approach that doesn't require any previous modelling. This is the evolutionary spectral analysis, as defined by Priestley (1965-1996). Then, we use a test that can detect many break points on the timeseries. This test is inspired by Subba Rao (1981). We use an extension to this test to allow the detection of multiple breaks. We base this on the extension ofAhamada and Boutahar (2002). This is the first time that this method is used in the case of inflation-targeting countries. We find that the inflation-targeting policyhad a transition period for countries that had a high and volatile inflation experience before the inflation-targeting adoption. There is the case of New Zealand,Canada and Sweden. In these countries, we identify a structural change in the inflation series resulting to the inflation targeting intervention. However, In thecase of other countries like United Kingdom that have a relatively lower inflation rate experience before the ITP adoption, we didn't find a break point caused by this monetary policy intervention. In this case, the ITP had a role of ensuring this price stability. This result is explained by the fact that the inflation targetingis relevant when the initial inflation to be stabilized is near the target range (Artus, 2004). So, in this paper we justify the intuition of Artus (2004). The second result in our paper consists on the nature of inflation stabilization during the inflation-targeting period. The results proof a long-term stabilization on the inflation dynamic in the period of IT. These results traduce the success of this new framework to anchor the inflation expectation anchoring. So, we can conclude thatthis policy is preferment to ensure price stability in the case of industrials countries.inflation targeting, spectral analysis and structural change

The transition period before the inflation targeting policy

In this paper, we study the inflation dynamics in an industrial inflation-targeting country (New Zealand). Our objective is to check if the inflation targeting policy has a transition period or not. Loosely speaking, we try to give some response to the famous debate: if the inflation targeting is a framework or a simple monetaryrule. For this purpose, we use a frequency approach: Evolutionary Spectral Analysis, as defined by Priestley (1965-1996). Then, we detect endogenously a structuralbreak point in inflation series, by applying a non-parametric test. This is the first time that this method is used in the case of inflation-targeting countries. Our main finding is that the adoption of the inflation-targeting policy in New Zealand was characterized by a transition period before the adoption of this framework. This period was characterized by many radical reforms, which caused a structuralbreak in the New Zealand inflation series. These reforms were made to lead back the inflation close to the initial target. In addition, these reforms increased the transparency and the credibility of the monetary policy. We conclude from our frequency analysis that the inflation series becomes stable in long-term after the adoption of the inflation targeting. This can be a justification of the effectiveness of this policy to ensure the price stability.New Zealand; inflation targeting; spectral analysis and structural change

Taylor Rule And Inflation Targeting: Evidence From New Zealand

New Zealand has the longest experience in inflation targeting. This policy was announced on March 4th 1989 and was put into action on February 1st 1990. In addition, New Zealand has the most clearly defined target and policy framework for achieving it. Thus, in order to conduct this policy, Taylor (1993a) defined an instrument, which is called «Taylor rule». This rule applied to the US economy becomes a reference for all subsequent studies, which look for the rule or the instruments to conduct an inflation targeting policy. The New Zealand reserve bank (NZRB) has focused rather more strongly than the Federal Reserve Bank (FED) on price stability. So, we show that the Taylor rule with standard parameter didn’t reflect the behaviours of the NZRB. In this paper, we try to find the best instrument, which reflects the behaviour of the RBNZ.  The methodology of our paper consists in comparing some rules, like Traditional Taylor rule (TTR) and some style rules, which are different. Our methodology consists to select the best rule using both the Fisher test and the information criteria. The estimation methods depend on the result of the exogeneity, autocorrelation and heteroscedasticity.  We find three important results. We show that the TTR with standard parameter used in the US doesn’t describe New Zealand monetary policy. Therefore, we show that the best rule, which reflects the behaviour of the NZRB, is a forward-looking rule. Finally, an important result, which we interpreted with some discretion, that the exchange rate must be included in the rule

Stabilité-croissance et performance économique : quelle relation selon une revue de la littérature ?

L'objectif de ce papier est de proposer une synthèse de la littérature traitant la relation entre volatilité et croissance. L'intérêt de ce papier consiste à montrer que cette littérature a évolué dans deux sens contradictoires et que la plupart des économistes retiennent les résultats d'un des courants, soit en raison d'une ignorance de la seconde théorie, soit en prenant le courant qui les arrange. La relation entre volatilité et croissance a évolué dans un premier temps dans le sens d'une relation positive, puis la littérature a évoluée vers une relation négative. Dans ce papier, nous montrons les fondements théoriques de l'évolution de cette littérature.volatilité; croissance; performance économique; stabilité; canal d'investissement

Stabilité-croissance et performance économique : quelle relation selon une revue de la littérature ?

Working paper GATE 2010-26L'objectif de ce papier est de proposer une synthèse de la littérature traitant la relation entre volatilité et croissance. L'intérêt de ce papier consiste à montrer que cette littérature a évolué dans deux sens contradictoires et que la plupart des économistes retiennent les résultats d'un des courants, soit en raison d'une ignorance de la seconde théorie, soit en prenant le courant qui les arrange. La relation entre volatilité et croissance a évolué dans un premier temps dans le sens d'une relation positive, puis la littérature a évoluée vers une relation négative. Dans ce papier, nous montrons les fondements théoriques de l'évolution de cette littérature

The transition period before the inflation targeting policy

Working Paper GATE 2008-30In this paper, we study the inflation dynamics in an industrial inflation-targeting country (New Zealand). Our objective is to check if the inflation targeting policy has a transition period or not. Loosely speaking, we try to give some response to the famous debate: if the inflation targeting is a framework or a simple monetaryrule. For this purpose, we use a frequency approach: Evolutionary Spectral Analysis, as defined by Priestley (1965-1996). Then, we detect endogenously a structuralbreak point in inflation series, by applying a non-parametric test. This is the first time that this method is used in the case of inflation-targeting countries. Our main finding is that the adoption of the inflation-targeting policy in New Zealand was characterized by a transition period before the adoption of this framework. This period was characterized by many radical reforms, which caused a structuralbreak in the New Zealand inflation series. These reforms were made to lead back the inflation close to the initial target. In addition, these reforms increased the transparency and the credibility of the monetary policy. We conclude from our frequency analysis that the inflation series becomes stable in long-term after the adoption of the inflation targeting. This can be a justification of the effectiveness of this policy to ensure the price stability

The inflation Targeting effect on the inflation series: A<br />New Analysis Approach of evolutionary spectral analysis

Working Paper GATE 2008-32In this work, we study the inflation targeting effect on the inflation dynamics in the case of four industrial countries. Our objective is to check whether the inflation targeting policy (ITP) has a significant impact on the change of the inflation path. We use a non-parametric approach that doesn't require any previous modelling. This is the evolutionary spectral analysis, as defined by Priestley (1965-1996). Then, we use a test that can detect many break points on the timeseries. This test is inspired by Subba Rao (1981). We use an extension to this test to allow the detection of multiple breaks. We base this on the extension ofAhamada and Boutahar (2002). This is the first time that this method is used in the case of inflation-targeting countries. We find that the inflation-targeting policyhad a transition period for countries that had a high and volatile inflation experience before the inflation-targeting adoption. There is the case of New Zealand,Canada and Sweden. In these countries, we identify a structural change in the inflation series resulting to the inflation targeting intervention. However, In thecase of other countries like United Kingdom that have a relatively lower inflation rate experience before the ITP adoption, we didn't find a break point caused by this monetary policy intervention. In this case, the ITP had a role of ensuring this price stability. This result is explained by the fact that the inflation targetingis relevant when the initial inflation to be stabilized is near the target range (Artus, 2004). So, in this paper we justify the intuition of Artus (2004). The second result in our paper consists on the nature of inflation stabilization during the inflation-targeting period. The results proof a long-term stabilization on the inflation dynamic in the period of IT. These results traduce the success of this new framework to anchor the inflation expectation anchoring. So, we can conclude thatthis policy is preferment to ensure price stability in the case of industrials countries

Le ciblage d'inflation : un essai de comparaison internationale

La politique de ciblage d'inflation est un régime monétaire qui vise l'inflation. Sa pratique a été marquée par une grande stabilité observée aux débuts des années 90 et 2000. Un débat émerge sur l'efficacité et la performance économique de ce régime. De nombreuses recherches se sont intéressées à cette question sans pouvoir pour autant parvenir à un consensus ultime. L'objectif de ce papier est de contribuer à ce débat en clarifiant l'origine de ce régime monétaire et en proposant, par la suite, notre propre grille d'analyse quantitative. Nous avons recours à l'analyse de deux agrégats macroéconomique : l'inflation et la croissance économique selon différents échantillons. Dans un premier temps, nous évaluons l'évolution de ces deux grandeurs, dans tous les pays à ciblage d'inflation, entre la période précédant son adoption et la période post-adoption. Les résultats de cette première comparaison montrent sans exception que tous les pays à ciblage d'inflation ont eu un taux d'inflation plus faible et moins volatile. De même, nous prouvons que le ciblage d'inflation ne sacrifie pas la croissance économique en contre partie d'une faible volatilité d'inflation. Dans un second temps et pour des raisons de robustesse nous procédons à une comparaison des pays voisins deux à deux, dont l'un adoptant le régime de ciblage d'inflation et l'autre pratiquant une politique monétaire différente. Cette seconde comparaison montre que tous les pays à ciblage d'inflation sans exception ont connu de meilleures performances macroéconomiques que leurs voisins de non ciblage. A partir de ces résultats nous concluons à l'efficacité et la performance économique de cette politique monétaire à la fois pour les pays industrialisés et les pays émergents.ciblage d'inflation, performance, efficacité, stabilité

Commonality In Liquidity: Lessons From An Emerging Stock Market

This study investigates commonality in liquidity in Tunisia, an order-driven, emerging stock market. We analyze the impact of information flow on the relationship between market liquidity and liquidity of securities, in addition to firm size and industry determinants. The effect of liquidity commonality on the liquidity of securities depends on firm size. The effect of market-wide commonality on liquidity is found to be stronger than that of industry-wide commonality. Our results show that public and private information flows improve liquidity. Systematic trading volume dominates systematic order imbalance in explaining liquidity; however, this effect is lesser compared to that of market liquidity