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The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?

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  • Yannick Lucotte

    ()
    (LEO - Laboratoire d'économie d'Orleans - CNRS : UMR6221 - Université d'Orléans)

Abstract

Over the last decade, a growing number of emerging countries has adopted inflation targeting as monetary policy framework. In a recent paper, Freedman and Laxton (2009) ask the question “Why Inflation Targeting?”. This paper empirically investigates this question by analyzing a large set of institutional and political factors potentially associated with a country's choice of adopting IT. Using panel data on a sample of thirty inflation targeting and non-inflation emerging countries, for the period 1980-2006, our results suggest that central bank independence, policy-makers' incentives, and characteristics of political system play an important role in the choice of IT, while the level of financial development and political stability do not seem to matter. Empirical findings are confirmed by extensive robustness tests.

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Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00539713.

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Date of creation: 2010
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Handle: RePEc:hal:journl:hal-00539713

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Keywords: Inflation targeting; central bank independence; financial development; political institutions; emerging countries;

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Cited by:
  1. Hanna Samaryna & Jakob de Haan, 2011. "Right on Target: Exploring the Determinants of Inflation Targeting Adoption," DNB Working Papers 321, Netherlands Central Bank, Research Department.

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