IMF Working Papers

This paper examines the effectiveness of inflation targeting (IT) frameworks during the global inflation surge of 2022, a shock primarily driven by large adverse supply side disruptions following the onset of the War in Ukraine. The empirical findings suggest that (de jure) IT frameworks did not systematically deliver better inflation outcomes during this episode. The decline in inflation back towards historical norms was broadly comparable across (de jure) IT and non-IT country groups. While (de jure) IT central banks hiked their policy rates by more than non-IT central banks on average, this did not help with achieving better inflation outcomes. Also, we find no evidence of a more flexible exchange rate after the shock in (de jure) IT central banks. These findings suggest that (de jure) IT does not necessarily imply an advantage for monetary policy, particularly in the face of large, global supply shocks. Further analysis is warranted on how monetary policy frameworks can adapt to an environment characterized by more frequent and persistent supply-side disruptions. While using a de facto classification of IT regimes would be preferable, the absence of a comprehensive database makes this infeasible.