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The Scope for Inflation Targeting in Developing Countries

In: Macroeconomic Modelling and Monetary and Exchange Rate Regimes

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  • Paul R. Masson
  • Miguel A. Savastano
  • Sunil Sharma

Abstract

Inflation targeting (IT) serves as monetary policy framework in several advanced economies, where it has enhanced policy transparency and accountability. The chapter considers its wider applicability to developing countries. The prerequisites for a successful IT framework are identified as the 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, though several of them could, with some further institutional changes and an overriding commitment to low inflation, make use of an IT framework.

Suggested Citation

  • Paul R. Masson & Miguel A. Savastano & Sunil Sharma, 2019. "The Scope for Inflation Targeting in Developing Countries," World Scientific Book Chapters, in: Macroeconomic Modelling and Monetary and Exchange Rate Regimes, chapter 10, pages 331-383, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789811201721_0010
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    More about this item

    Keywords

    Exchange Rates; Modelling; Monetary Unions; Inflation Targeting;
    All these keywords.

    JEL classification:

    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions

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