Inflation targeting: a comparative analysis between point, range and point with range inflation targeting

Masikane, Siphiwe Jeanette
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This research analyses the performance of three types of inflation targeting, i.e., point targeting, range targeting and point with range targeting. Inflation targeting countries are grouped according to their target type (Treatment group) and compared against non-targeting countries (Control group). The difference and difference model (DID) is used to compute the statistical analyses and to assess performance in respect of average inflation and inflation volatility. The result shows a significant decrease in the average inflation rate in targeting and non-targeting countries. The regressed average inflation rate reduced more under point targeting than under range and point with range targeting. An assessment of inflation volatility finds that the magnitude of the change in volatility is significantly higher in range targeting than in point and point with range targeting. The implications of these results show that countries which plan to introduce inflation targeting for the first time should opt for point targeting from a perspective of reducing inflation and anchoring expectations. On the other hand, countries which aim for low overall inflation volatility should opt for range targeting from a perspective of range flexibility and fostering credibility
A research report submitted to the School of Economics and Finance, Faculty of Commerce, Law and Management, University of the Witwatersrand, in partial fulfilment of the degree of Master of Commerce, 2021