How are inflation targets set?

Abstract

This paper contributes to a better understanding of how inflation targets are set. First, we gather evidence on how inflation targets are set from official central bank and government publications, and from a questionnaire of our own design.

Second, we estimate what determines the level of the inflation target in 19 inflation-targeting countries by using unbalanced panel interval regressions to deal with the issue that targets are typically set as a range rather than a point.

Keywords

• central bank independence
• imperfect credibility
• macroeconomic policy