## Inflation Targeting and Output Growth: Empirical Evidence for the European Union

_IMF Working Papers, May 1, 2005_

## Source details

**Canonical URL:** [Inflation Targeting and Output Growth: Empirical Evidence for the European Union](https://www.imf.org/en/publications/wp/issues/2016/12/31/inflation-targeting-and-output-growth-empirical-evidence-for-the-european-union-18189)

## Other formats

- [Markdown version](/en/publications/wp/issues/2016/12/31/inflation-targeting-and-output-growth-empirical-evidence-for-the-european-union-18189/index.md)
- [Structured JSON version](/en/publications/wp/issues/2016/12/31/inflation-targeting-and-output-growth-empirical-evidence-for-the-european-union-18189/index.json)
- [Bundle manifest](/en/publications/wp/issues/2016/12/31/inflation-targeting-and-output-growth-empirical-evidence-for-the-european-union-18189/bundle-manifest.json)

## Bibliographic details
- Published: May 1, 2005
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451861082.001

---

### Summary
- Paper evaluates performance of two alternative policy rules: a forward-looking rule and a spontaneous adjustment rule.
- Evaluation is conducted under alternative inflation targets, measured in terms of output losses in a macroeconomic model, using European Union data.
- Main simulation findings:
  - Forward-looking rules contribute to macroeconomic stability and monetary policy credibility.
  - A positive inflation target, as opposed to zero inflation, leads to higher and less volatile output.
- Results are robust to changes in the specification of the model and time period.
- Applying the same methodology to individual countries supports country-specific flexible inflation targeting.

### Key findings and implications
- Findings:
  - Forward-looking monetary policy rules improve macroeconomic stability.
  - Positive inflation targets outperform zero inflation for output level and volatility.
  - Country-level application supports flexible, country-specific inflation targeting.
- Policy implications:
  - Consider adopting forward-looking monetary policy rules to enhance credibility and stability.
  - Maintain a positive inflation target rather than aiming for zero inflation to support higher and less volatile output.
  - Allow flexibility for country-specific inflation-targeting frameworks within the European Union context.

### Methodology
- Uses a macroeconomic model to simulate output losses under alternative policy rules and inflation targets.
- Comparative analysis includes robustness checks across model specifications and time periods.
- Methodology is also applied to individual countries for country-specific evaluation.

---

## Content in this bundle

- **Wp0589**
  - [Wp0589 (Markdown version)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0589.pdf.md){rel="alternate" type="text/markdown"}
  - [Wp0589 (PDF)](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2005/_wp0589.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/inflation-targeting-and-output-growth-empirical-evidence-for-the-european-union-18189_