Are inflation targets credible? A novel test

We propose a novel test of the credibility of inflation targets, using surveys of professional forecasters and a variant of the model of inflation expectations developed in Mehrotra and Yetman (2017). We find that inflation targets in most economies have been considered credible by professional forecasters, as the estimated anchor of inflation forecasts is close to the announced inflation target. Moreover, any deviations between the estimated anchor and the target tend to be short lived.