The Lag in Effect of Inflation Targeting and Policy Evaluation

The lag in effect of monetary policy contains vital information for the policy evaluation. Allowing for a time-varying treatment effect, we show that inflation targeting effectively lowers inflation for both developed and developing countries. Developed countries reach their targets rapidly with a two-year lag in effect. Developing countries, however, reduce inflation gradually toward their targets and do not reach their ultimate goal by the end year of 2007.