Inflation Targeting and Country Risk: an Empirical Investigation

 
Author/Editor: Fouejieu, Armand ; Roger, Scott
 
Publication Date: January 23, 2013
 
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Summary: The sovereign debt crisis in Europe has highlighted the role of country risk premia as a link between countries’ fiscal and external balances, financial conditions and monetary policy. The purpose of this paper is to estimate how adoption of inflation targeting (IT) affects spreads. It is hypothesized that country risk premia for IT countries (especially among emerging market economies) may be lower than for other countries owing to greater policy predictability and more stable long-term inflation. The findings suggest that IT reduces the risk premium, both through adoption of the IT regime, and through the observed track record in stabilizing inflation.
 
Series: Working Paper No. 13/21
Subject(s): Inflation targeting | Risk premium | Monetary policy | Economic models

 
English
Publication Date: January 23, 2013
ISBN/ISSN: 9781475554717/2227-8885 Format: Paper
Stock No: WPIEA2013021 Pages: 30
Price:
US$18.00 (Academic Rate:
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