DP7377 Inflation Targeting and Business Cycle Synchronization

Author(s): Robert P Flood, Andrew K Rose
Publication Date: July 2009
Keyword(s): bilateral, data, empirical, GDP, insulation, regime
JEL(s): F42
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7377

Inflation targeting seems to have a small but positive effect on the synchronization of business cycles; countries that target inflation seem to have cycles that move slightly more closely with foreign cycles. Thus the advent of inflation targeting does not explain the decoupling of global business cycles, for two reasons. Indeed business cycles have not in fact become less synchronized across countries.