Is Inflation targeting a necessary condition for anchoring expectations?

Central banks are known to place significant importance on controlling inflation. However, expectations of public may seriously temper monetary authorities' efforts even if the central bank intends to change the course in terms of policy. That is why; an inflation rate targeting framework may help convince public about the commitment of the central bank to its announcements for future inflation. We hypothesize that, for a successful anchoring exercise, inflation must be non-stationary prior to the adoption of an inflation targeting regime while it must be stationary thereafter. By using data from Canada, New Zealand, Sweden, and the UK with the help of a number of testing techniques, we show that while inflation is non-stationary before the inflation targeting was adopted as predicted, it turns out to be stationary thereafter. Yet, similar results are obtained for non- Inflation Targeting countries as well, such as the US, Japan and Germany. Therefore, it is difficult to exclusively credit inflation targeting in anchoring public's expectations. Our results suggest that perceptions on the credibility of central banks for achieving price stability is more important in forming public expectations on inflation. Therefore, central banks should primarily focus on the establishment of credibility to control inflation and achieve price stability.