## The Scope for Inflation Targeting in Developing Countries

_IMF Working Papers, October 1, 1997_

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**Canonical URL:** [The Scope for Inflation Targeting in Developing Countries](https://www.imf.org/en/publications/wp/issues/2016/12/30/the-scope-for-inflation-targeting-in-developing-countries-2356)

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## Bibliographic details
- Authors: Miguel A Savastano, Paul R Masson, Sunil Sharma
- Published: October 1, 1997
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451855159.001

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### Summary findings
- Inflation targeting (IT) serves as monetary policy framework in several advanced economies, where it has enhanced policy transparency and accountability.
- The paper considers the wider applicability of IT to developing countries.
- The prerequisites for a successful IT framework are identified as:
  - an ability to carry out an independent monetary policy (free of fiscal dominance or commitment to another nominal anchor, like the exchange rate); and
  - a quantitative framework linking policy instruments to inflation.
- These prerequisites are largely absent among developing countries.
- Several developing countries could, with some further institutional changes and an overriding commitment to low inflation, make use of an IT framework.

### Key policy implications and recommendations
- Strengthen central bank independence to ensure monetary policy is free of fiscal dominance.
- Avoid commitments to another nominal anchor (for example, the exchange rate) if adopting an IT framework.
- Develop and maintain a quantitative framework that links policy instruments explicitly to inflation outcomes.
- Pursue an overriding commitment to low inflation as a precondition for successful IT adoption.
- Implement institutional changes that create the necessary conditions for IT in countries where prerequisites are currently lacking.

### Context and scope
- The analysis focuses on the applicability of inflation targeting to developing countries and contrasts experiences with advanced economies where IT has already enhanced transparency and accountability.
- Subjects covered include: Banking, Central bank autonomy, Central banks, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Monetary policy frameworks, Prices.

*The Scope for Inflation Targeting in Developing Countries — Miguel A Savastano, Paul R Masson, Sunil Sharma; October 1, 1997.*

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## Content in this bundle

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/30/the-scope-for-inflation-targeting-in-developing-countries-2356_