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Inflation Targeting in Emerging Market Economies

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  • Arminio Fraga
  • Ilan Goldfajn
  • Andre Minella

Abstract

This paper assesses inflation targeting in emerging market economies (EMEs), and develops applied prescriptions for the conduct of monetary policy and inflation-targeting design in EMEs. We verify that EMEs have faced more acute trade-offs higher output and inflation volatility and worse performance than developed economies. These results stem from more pronounced external shocks, lower credibility, and lower level of development of institutions in these countries. In order to improve their performance, we recommend high levels of transparency and communication with the public and the development of more stable institutions. At an operational level, we propose a procedure that a central bank under inflation targeting can apply and communicate when facing strong supply shocks, and suggest a monitoring structure for an inflation-targeting regime under an IMF program.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10019.

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Date of creation: Oct 2003
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Publication status: published as Fraga, Arminio, Ilan Goldfajn and André Minella. NBER Macroeconomics Annual, Vol. 18. Chicago: University of Chicago Press, 2003.
Handle: RePEc:nbr:nberwo:10019

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