## Disagreement about Future Inflation: Understanding the Benefits of Inflation Targeting and Transparency

_IMF Working Papers, January 25, 2018_

## Source details

**Canonical URL:** [Disagreement about Future Inflation: Understanding the Benefits of Inflation Targeting and Transparency](https://www.imf.org/en/publications/wp/issues/2018/01/26/disagreement-about-future-inflation-understanding-the-benefits-of-inflation-targeting-and-45596)

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## Bibliographic details
- Authors: Steve Brito, Yan Carriere-Swallow, Bertrand Gruss
- Published: January 25, 2018
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484339718.001

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### Summary
- We estimate the determinants of disagreement about future inflation in a large and diverse sample of countries, focusing on the role of monetary policy frameworks.
- The reduction in disagreement that follows the adoption of inflation targeting is entirely due to increased central bank transparency.
- Since the benefits of increased transparency are non-linear, the gains from inflation targeting adoption have accrued mainly to countries that started from a low level of transparency. These have tended to be developing countries.

### Key findings
- The observed reduction in disagreement about future inflation after adoption of inflation targeting (IT) arises solely from increased central bank transparency.
- Benefits of increased transparency are non-linear.
- Countries with low initial transparency—typically developing countries—receive the largest gains from adopting IT accompanied by transparency improvements.

### Mechanism and interpretation
- Central bank transparency is the operative channel through which IT adoption reduces disagreement about future inflation.
- Non-linearity implies that incremental transparency improvements matter more when starting transparency is low; countries starting with higher transparency gain less from additional transparency tied to IT adoption.

### Policy implications
- Adoption of inflation targeting should be accompanied by increases in central bank transparency to reduce disagreement about future inflation.
- Prioritizing transparency reforms in developing countries—where starting transparency has tended to be low—can yield larger reductions in disagreement about future inflation.
- Policymakers should account for non-linear returns to transparency when designing monetary policy framework reforms.

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## Content in this bundle

- **wp1824 — Sections 1–3**
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_Source: https://www.imf.org/en/publications/wp/issues/2018/01/26/disagreement-about-future-inflation-understanding-the-benefits-of-inflation-targeting-and-45596_