Empirical evaluation of the inflation targeting system in Hungary

Proceedings of The 3rd World Conference on Management, Business and Economics

Year: 2022



Empirical evaluation of the inflation targeting system in Hungary

Tibor Bareith, József Varga



The paper seeks to answer the question whether the inflation targeting introduced in June 2001 has contributed to the inflation and core inflation path in Hungary. The analysis is conducted on monthly data from 1995 to 2020 using OLS and VAR models. Models were also estimated for the full period and around the time of the IT adjustment. The main result is that we find evidence that inflation targeting had a positive effect on both core inflation and inflation at the time of IT adoption. When looking at the full period, inflation targeting is significant for the core inflation path and Hungarian monetary policy can also have an impact mainly on core inflation. No relationship was found between the volatility of underlying inflation indicators and IT. In our view, overall, inflation targeting has helped and is still helping to achieve inflation targets. We should not forget that as a small, open economy, our country is in many cases vulnerable to the economic cycles of the EU first and the world second.

keywords: central bank, core inflation, monetary policy.