Comments on

1
Comments on

• Inflation control
• Why are some countries more successful than
  others?
• Thórarinn Petursson
• Benoit Mojon (Banque de France)
• Inflation Targeting 20 Years on Conference
• Norges Bank, Oslo, 11 June 2009

2
Outline

• What the paper finds?
• Comments
• Praises
• Why does IT work?
• Inflation, output, asset prices and welfare

3
What the paper finds? 1/3

• Inflation variability depends on
• Exchange rate variability
• Exchange rate pass-through
• Monetary policy transparency
• The adoption of inflation targeting

4
What the paper finds? 2/3

• Inflation variability does not depend on
• Size
• Level of economic development
• Trade composition
• Output variability
• Output sensitivity to world growth

5
What the paper finds? 3/3

• Denmark, Honk Kong, Japan, Taiwan and the US have
  a lot in common!

6
What the paper finds? 3/3

• Denmark, Honk Kong, Japan, Taiwan and the US have
  a lot in common!
• Neither in EMU
• Nor Inflation Targeters
• Nor VSOEs
• Nor Emerging

7
Praises

• Clean, rigorous empirical analysis
• The paper is clear and very well written, a
  pleasure to read

8
Comments

• Why does IT work?
• Inflation, output, asset prices and welfare

9
Why does IT work?

Diron and Mojon (2008)
10
Why does IT work?
Diron and Mojon (2008)
11
Inflation, output, asset prices welfare

Cecchetti, Flores-Lagunes and Krause (2004)
12
Inflation, output, asset prices welfare

Cecchetti, Flores-Lagunes and Krause (2004)
13
Inflation, output, asset prices welfare

Cecchetti, Flores-Lagunes and Krause (2004)
14
Inflation, output, asset prices welfare

Petursson
15
Inflation, output, asset prices welfare

• IT performance and asset prices
• Frappa and Mesonnier (2009) showed that IT
  targeters have had significantly higher asset
  price volatility (robust to controls)
• Why is unclear
• False feeling of security (investors, CB)
• Lower inflation risk premia gt feed into asset
  prices
• True test ahead
• Short term Will IT help anchor away deflation
• Medium term Will IT avoid that fiscal stimuli
  lead to a bond market crash

16
Conclusions

• Very nice empirical investigation showing that IT
  has worked
• May be not on the most relevant issues of IT
• True test for IT lies ahead of us