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Taylor principle and inflation stability in emerging market countries

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  • Teles, Vladimir Kühl
  • Zaidan, Marta

Abstract

The goal of this paper is to evaluate the validity of the Taylor principle for inflation control in 12 developing countries that use inflation targeting regimes: Brazil, Chile, Colombia, Hungary, Israel, Mexico, Peru, Philippines, Poland, South Africa, Thailand and Turkey. The test is based on a state-space model to determine when each country has followed the principle; then a threshold unit root test is used to verify if the stationarity of the deviation of the expected inflation from its target depends on compliance with the Taylor principle. The results show that such compliance leads to the stationarity of the deviation of the expected inflation from its target in all cases. Furthermore, in most cases, non-compliance with the Taylor principle leads to nonstationary deviation of the expected inflation.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Development Economics.

Volume (Year): 91 (2010)
Issue (Month): 1 (January)
Pages: 180-183

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Handle: RePEc:eee:deveco:v:91:y:2010:i:1:p:180-183

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Web page: http://www.elsevier.com/locate/devec

Related research

Keywords: Taylor Rule Emerging markets Inflation stability;

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References

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  1. Thomas Lubik & Frank Schorfheide, 2002. "Testing for Indeterminacy:An Application to U.S. Monetary Policy," Economics Working Paper Archive 480, The Johns Hopkins University,Department of Economics, revised Jun 2003.
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  3. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 312-318, February.
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Citations

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Cited by:
  1. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
  2. Colla, Ernesto & Kuhl Teles, Vladimir & Eduardo Balbino, Christian, 2010. "A política monetária brasileira sob o regime de metas de inflação," Textos para discussão 244, Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil).
  3. Pierre-Richard Agénor & K. Alper & Luiz A. Pereira da Silva, 2011. "Capital Regulation, Monetary Policy and Financial Stability," Working Papers Series 237, Central Bank of Brazil, Research Department.
  4. Galimberti, Jaqueson K. & Moura, Marcelo L., 2010. "Taylor Rules and Exchange Rate Predictability in Emerging Economies," Insper Working Papers wpe_214, Insper Working Paper, Insper Instituto de Ensino e Pesquisa.

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