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Inflation Targeting Framework: Is the story different for Asian Economies?

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  • Naqvi, Bushra
  • Rizvi, Syed Kumail Abbas

Abstract

This paper aims to measure and compare the economic performance of four Asian economies who adopted Inflation Targeting (Indonesia, Philippines, South Korea and Thailand) against their six neighboring Asian non-targeting economies (China, Hong Kong, India, Malaysia, Singapore and Pakistan). Using the methodology of Ball and Sheridan, firstly, behavior of inflation, output growth and short term interest rate has been measured for both groups (Targeters vs. Non-Targeters) in pre and post IT adoption period in order to see whether performance has improved in targeting countries after the adoption of IT. Secondly, we try to find out whether Inflation Targeting has played any significant role in the changed behavior of these variables. Thirdly, we measure the effect of output gap and supply shock on inflation and see whether economic structure of these countries has changed between pre and post targeting period; and then we measure the role of IT in the structural change of these economies if there is any. The results force us to believe that economic performance has improved in all Asian economies in post targeting period. However, IT does not seem to play any significant role in this improvement of targeting countries. In addition to this, we find strong evidence that all variables showed strong reversion to mean suggesting that improved performance of variables today is in fact the outcome of poor economic performance in the past.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 19546.

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Date of creation: 01 Jun 2009
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Handle: RePEc:pra:mprapa:19546

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Keywords: Inflation Targeting; Asian countries; Output gap; Targeters vs Non Targeters; Economic Performance;

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References

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  1. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, Elsevier, vol. 85(1-2), pages 312-318, February.
  2. Laurence M. Ball & Niamh Sheridan, 2004. "Does Inflation Targeting Matter?," NBER Chapters, in: The Inflation-Targeting Debate, pages 249-282 National Bureau of Economic Research, Inc.
  3. Stephen G. Cecchetti & Michael Ehrmann, 1999. "Does Inflation Targeting Increase Output Volatility? An International Comparison of Policymakers' Preferences and Outcomes," NBER Working Papers 7426, National Bureau of Economic Research, Inc.
  4. Corbo, Vittorio & Landerretche, Oscar & Schmidt-Hebbel, Klaus, 2001. "Assessing Inflation Targeting after a Decade of World Experience," International Journal of Finance & Economics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 6(4), pages 343-68, October.
  5. Frederic S. Mishkin & Adam S. Posen, 1998. "Inflation Targeting: Lessons from Four Countries," NBER Working Papers 6126, National Bureau of Economic Research, Inc.
  6. Brito, Ricardo D. & Bystedt, Brianne, 2010. "Inflation targeting in emerging economies: Panel evidence," Journal of Development Economics, Elsevier, Elsevier, vol. 91(2), pages 198-210, March.
  7. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
  8. International Monetary Fund, 2005. "Inflation Targeting Lite' in Small Open Economies," IMF Working Papers 05/172, International Monetary Fund.
  9. Philip Arestis & Fernando Ferrari-Filho & Luiz Fernando de Paula, 2011. "Inflation targeting in Brazil," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 25(2), pages 127-148.
  10. Berument, Hakan & Yuksel, Ebru, 2007. "Effects of adopting inflation targeting regimes on inflation variability," Physica A: Statistical Mechanics and its Applications, Elsevier, Elsevier, vol. 375(1), pages 265-273.
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Cited by:
  1. Peter J. Morgan, 2013. "Monetary Policy Frameworks in Asia : Experience, Lessons, and Issues," Macroeconomics Working Papers 23639, East Asian Bureau of Economic Research.
  2. Morgan, Peter J., 2013. "Monetary Policy Frameworks in Asia: Experience, Lessons, and Issues," ADBI Working Papers, Asian Development Bank Institute 435, Asian Development Bank Institute.
  3. Peter J. Morgan, 2013. "Monetary Policy Frameworks in Asia : Experience, Lessons, and Issues," Finance Working Papers 23639, East Asian Bureau of Economic Research.
  4. Alexandra Peter & Sarwat Jahan & Edward R. Gemayel, 2011. "What Can Low-Income Countries Expect From Adopting Inflation Targeting?," IMF Working Papers 11/276, International Monetary Fund.

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