This paper examines how inflation-targeting central banks have responded to supply shocks, based on the sign-restriction VAR approach. It is found that inflation-targeting central banks have become accommodative to adverse supply shocks following the adoption of inflation targeting.

"Interpretations of inflation targeting (IT) have ranged widely, from "inflation-only targeting" without regard for output, to cheap talk without effect, to transparency increasing flexibility without cost. We characterize five interpretations of the adoption if IT as shifts between strategies...