{"title":"Does inflation targeting track record matter for asset prices? Evidence from stock, bond, and foreign exchange markets","authors":"Zhongxia Zhang","doi":"10.1016/j.intfin.2025.102141","DOIUrl":null,"url":null,"abstract":"<div><div>Many central banks have adopted inflation targeting as their monetary policy frameworks since 1990. Yet, monetary authorities’ track records of managing inflation with respect to the stated policy objectives have varied significantly. This paper examines how inflation targeting track records affect asset prices within three common asset classes: stocks, bonds, and exchange rates. The analysis reveals heterogeneous and enduring effects of track records on financial markets. A stronger track record in inflation targeting leads to a more negative reaction from stock markets to inflationary pressures, with effects persisting for about four quarters. Additionally, the sensitivity of rising long-term sovereign bond yields to inflation diminishes for about three quarters as the track record improves. Moreover, credible inflation targeters are more likely to allow greater flexibility in exchange rates to deal with inflationary shocks. Consequently, credible inflation targeting track records produce desirable policy outcomes by reinforcing monetary policy transmission and saving fiscal space.</div></div>","PeriodicalId":48119,"journal":{"name":"Journal of International Financial Markets Institutions & Money","volume":"101 ","pages":"Article 102141"},"PeriodicalIF":5.4000,"publicationDate":"2025-03-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Journal of International Financial Markets Institutions & Money","FirstCategoryId":"96","ListUrlMain":"https://www.sciencedirect.com/science/article/pii/S1042443125000319","RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"Q1","JCRName":"BUSINESS, FINANCE","Score":null,"Total":0}
引用次数: 0
Abstract
Many central banks have adopted inflation targeting as their monetary policy frameworks since 1990. Yet, monetary authorities’ track records of managing inflation with respect to the stated policy objectives have varied significantly. This paper examines how inflation targeting track records affect asset prices within three common asset classes: stocks, bonds, and exchange rates. The analysis reveals heterogeneous and enduring effects of track records on financial markets. A stronger track record in inflation targeting leads to a more negative reaction from stock markets to inflationary pressures, with effects persisting for about four quarters. Additionally, the sensitivity of rising long-term sovereign bond yields to inflation diminishes for about three quarters as the track record improves. Moreover, credible inflation targeters are more likely to allow greater flexibility in exchange rates to deal with inflationary shocks. Consequently, credible inflation targeting track records produce desirable policy outcomes by reinforcing monetary policy transmission and saving fiscal space.
期刊介绍:
International trade, financing and investments, and the related cash and credit transactions, have grown at an extremely rapid pace in recent years. The international monetary system has continued to evolve to accommodate the need for foreign-currency denominated transactions and in the process has provided opportunities for its ongoing observation and study. The purpose of the Journal of International Financial Markets, Institutions & Money is to publish rigorous, original articles dealing with the international aspects of financial markets, institutions and money. Theoretical/conceptual and empirical papers providing meaningful insights into the subject areas will be considered. The following topic areas, although not exhaustive, are representative of the coverage in this Journal. • International financial markets • International securities markets • Foreign exchange markets • Eurocurrency markets • International syndications • Term structures of Eurocurrency rates • Determination of exchange rates • Information, speculation and parity • Forward rates and swaps • International payment mechanisms • International commercial banking; • International investment banking • Central bank intervention • International monetary systems • Balance of payments.