What Can Low-Income Countries Expect From Adopting Inflation Targeting?
November 1, 2011
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Summary
Inflation targeting (IT) is a relatively new monetary policy framework for low-income countries (LICs). The limited number of LICs with an IT framework and the short time that has elapsed since the adoption of this framework explains why there are no previous empirical studies on the performance of IT in LICs. This paper has made a first attempt at filling this gap. It finds that inflation targeting appears to be associated with lower inflation and inflation volatility. At the same time, there is no robust evidence of an adverse impact on output. This may explain the appeal of IT for many LICs, where building credibility of monetary policy is difficult and minimizing output costs of reducing inflation is imperative for social and political reasons.
Subject: Emerging and frontier financial markets, Financial markets, Inflation, Inflation targeting, Monetary policy, Monetary policy frameworks, Monetary transmission mechanism, Prices
Keywords: adoption date, control group, Emerging and frontier financial markets, Global, Inflation, Inflation targeting, inflation targeting dummy, inflation volatility, inflation-targeting infrastructure, IT adoption, IT country, IT framework, Low-Income Countries, monetary policy, Monetary Policy, Monetary policy frameworks, Monetary transmission mechanism, WP
Pages:
45
Volume:
2011
DOI:
Issue:
276
Series:
Working Paper No. 2011/276
Stock No:
WPIEA2011276
ISBN:
9781463925932
ISSN:
1018-5941
