Economic performance under different monetary policy frameworks

Abstract

We examine the economic performance (inflation and growth) associated with different monetary policy frameworks, presenting unconditional and conditional analyses, and using predictions of countries’ monetary policy framework choices to address the issue of endogeneity. We find some differences in performance associated with the different monetary policy frameworks, together with a general improvement over time which is explained in part by the trends towards inflation targeting and more precise monetary control, that is from changes in the choice of framework, but in part, and perhaps more strongly, reflects a more general trend towards better economic performance related to changes in decision-making within the frameworks. Our results suggest that the choice of MPF is an important, but by no means the only, determinant of economic performance, and therefore not the only consideration for policymakers looking to improve economic performance.