What Explains Recent Changes in International Monetary Policy Attitudes toward Inflation? Evidence from Developed Countries MELODY LO Department of Economics, College of Business, University of Texas at San Antonio, USA

Since Alogoskoufis and Smith (AER, 1991), several studies have stated that there are seemingly universal shifts in monetary policy attitudes toward inflation. However, no coherent empirical evidence is yet provided either to confirm whether there were universal monetary policy regime shifts or to explain what fundamentals may drive such shifts. Using long time series data from a group of 18 developed countries, this paper provides evidence revealing a recent stylized international shift in monetary policy making. Our findings, based on both cross-country and individual country analyses, show that policymakers in developed countries have dealt with inflation shocks much more aggressively as the 1990s ensued. Further, this increase in aggressiveness is attributed to an increased policy response to economic openness. The identified positive opennessaggressiveness relation has no historical precedent in the data.