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What drives the Choice of Money-based Targets in the World?

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  • César Calderón
  • Klaus Schmidt-Hebbel

Abstract

Money targeting (MT) was a highly popular monetary regime among central banks in both industrial and developing countries during the 1980s and 1990s. This paper presents a comprehensive empirical exploration of the possible explanations of why countries choose (and abandon) a MT regime. The paper uses a large world panel dataset for treatment and control country groups, applies five panel-data estimation techniques for discrete-choice dependent variables, and conducts robustness checks for different control groups and time periods. The paper’s evidence shows that the likelihood of having MT in place declines significantly and robustly with trade openness, financial development, a strong fiscal position, and monetary instability.

Suggested Citation

  • César Calderón & Klaus Schmidt-Hebbel, 2008. "What drives the Choice of Money-based Targets in the World?," Working Papers Central Bank of Chile 479, Central Bank of Chile.
    • Handle: RePEc:chb:bcchwp:479
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    References listed on IDEAS

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    Cited by:

    1. Cobham, David & Song, Mengdi, 2020. "How do countries choose their monetary policy frameworks?," Journal of Policy Modeling, Elsevier, vol. 42(6), pages 1187-1207.
    2. Lin, Hsin-Yi, 2016. "Do quantitative monetary targets matter?," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 415-428.
    3. repec:dgr:rugsom:12011-eef is not listed on IDEAS
    4. Samarina, A.., 2012. "Monetary targeting and financial system characteristics," Research Report 12011-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).

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