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Comments on. Inflation control… Why are some countries more successful than others ? Thórarinn Petursson Benoit Mojon (Banque de France) Inflation Targeting 20 Years on Conference Norges Bank , Oslo, 11 June 2009. Outline. What the paper finds? Comments Praises

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  1. Comments on Inflation control… Why are some countries more successfulthanothers? ThórarinnPetursson Benoit Mojon (Banque de France) Inflation Targeting 20 Years on Conference Norges Bank, Oslo, 11 June 2009

  2. Outline • What the paper finds? • Comments • Praises • Why does IT work? • Inflation, output, asset prices and welfare

  3. What the paper finds? 1/3 • Inflation variability depends on • Exchange rate variability • Exchange rate pass-through • Monetary policy transparency • The adoption of inflation targeting

  4. What the paper finds? 2/3 • Inflation variability does not depend on • Size • Level of economic development • Trade composition • Output variability • Output sensitivity to world growth

  5. What the paper finds? 3/3 • Denmark, Honk Kong, Japan, Taiwan and the US have a lot in common!

  6. What the paper finds? 3/3 • Denmark, Honk Kong, Japan, Taiwan and the US have a lot in common! • Neither in EMU • Nor Inflation Targeters • Nor VSOEs • Nor Emerging

  7. Praises • Clean, rigorous empirical analysis • The paper is clear and very well written, a pleasure to read

  8. Comments • Why does IT work? • Inflation, output, asset prices and welfare

  9. Why does IT work? Diron and Mojon (2008)

  10. Why does IT work? Diron and Mojon (2008)

  11. Inflation, output, asset prices & welfare Cecchetti, Flores-Lagunes and Krause (2004)

  12. Inflation, output, asset prices & welfare Cecchetti, Flores-Lagunes and Krause (2004)

  13. Inflation, output, asset prices & welfare Cecchetti, Flores-Lagunes and Krause (2004)

  14. Inflation, output, asset prices & welfare Petursson

  15. Inflation, output, asset prices & welfare • IT performance and asset prices • Frappa and Mesonnier (2009) showed that IT targeters have had significantly higher asset price volatility (robust to # controls) • Why is unclear • False feeling of security (investors, CB) • Lower inflation risk premia => feed into asset prices • True test ahead • Short term: Will IT help anchor away deflation • Medium term: Will IT avoid that fiscal stimuli lead to a bond market crash

  16. Conclusions • Very nice empirical investigation showing that IT has worked • May be not on the most relevant issues of IT • True test for IT lies ahead of us

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