## Macro Effects of Formal Adoption of Inflation Targeting

_IMF Working Papers, January 13, 2023_

## Source details

**Canonical URL:** [Macro Effects of Formal Adoption of Inflation Targeting](https://www.imf.org/en/publications/wp/issues/2023/01/15/macro-effects-of-formal-adoption-of-inflation-targeting-528218)

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## Bibliographic details
- Authors: Surjit Bhalla, Karan Bhasin, Prakash Loungani
- Published: January 13, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400229169.001

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### Summary of research question and approach
- Examines the impact of formal adoption of inflation targeting (IT) on inflation, growth, and anchoring of inflation expectations in advanced economies and emerging markets and developing economies (EMDEs).
- Uses country-level analysis including the Synthetic Control Method (SCM) to compare outcomes in IT countries to a synthetic cohort.

### Key findings on inflation
- Early adopters of IT (pre-2000) all saw declines in inflation rates following adoption.
- IT adopters since pre-2000 have enjoyed declines in inflation in only about half the cases.
- On average, there is not much difference between IT and non-IT countries in:
  - mean inflation,
  - inflation volatility,
  - the extent of inflation anchoring.
- Cannot rule out the possibility that observed success of IT may be due to “regression to the mean.”
- SCM country-level results: IT adoption delivers significant inflation gains in about a third of the cases.

### Key findings on growth
- Finds limited support for the concern that adoption of IT systematically leads to poorer growth outcomes.

### Interpretation and policy-relevant implication
- The belief that IT adoption will be sufficient to keep inflation in check cannot be taken for granted, especially at a time when central banks are struggling to control inflation.

### Publication and metadata (selected)
- Authors: Surjit Bhalla, Karan Bhasin, Prakash Loungani
- Date: January 13, 2023
- Pages: 31
- Volume: 2023
- Issue: 007
- Series: Working Paper No. 2023/007
- DOI: https://doi.org/10.5089/9798400229169.001
- Stock No: WPIEA2023007
- ISBN: 9798400229169
- ISSN: 1018-5941
- Subjects / Keywords: Emerging and frontier financial markets, Financial markets, Inflation, Inflation targeting, Monetary policy, Prices; Emerging and frontier financial markets, Global, Inflation, inflation expectation, Inflation expectations, Inflation forecasts, Inflation targeting, inflation volatility, IT adopter, IT adoption, IT country

*IMF Working Papers — Macro Effects of Formal Adoption of Inflation Targeting (Working Paper No. 2023/007, January 13, 2023).*

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_Source: https://www.imf.org/en/publications/wp/issues/2023/01/15/macro-effects-of-formal-adoption-of-inflation-targeting-528218_