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Assessing the performance of inflation targeting in East Asian economies

  • Hiroyuki Taguchi
  • Chizuru Kato

This paper aims at assessing the performance of the inflation targeting framework from the quantitative perspective of the money and inflation relationship, focusing on the four East Asian economies, i.e. Korea, Indonesia, Thailand and the Philippines, who adopted the inflation targeting framework soon after the 1997-98 Asian currency crisis. Our estimation results told us that the inflation targeting framework in the sample economies, except for the Philippines, has functioned well as an anchor to curb inflation, in the sense that the framework speeds up price adjustment against money supply compared with their previous regime of pegged exchange rates. We interpret the speeding-up of price adjustment under inflation targeting framework in such a way that the framework may have been able to curb inflation through stabilizing inflationary expectations. We also found that the well-functioning inflation targeting framework was consistent with another estimation outcome : that of enhanced monetary autonomy under the post-crisis floating exchange rate regime.

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Article provided by Asia Pacific School of Economics and Government, The Australian National University in its journal Asian-Pacific Economic Literature.

Volume (Year): 25 (2011)
Issue (Month): 1 (05)
Pages: 93-102

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Handle: RePEc:bla:apacel:v:25:y:2011:i:1:p:93-102
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  1. Barry Eichengreen, 2006. "Can Emerging Markets Float? Should They Inflation Target?," Chapters, in: Monetary Integration and Dollarization, chapter 8 Edward Elgar.
  2. Hiroyuki Taguchi, 2009. "Currency Regime and Monetary Autonomy," Finance Working Papers 23076, East Asian Bureau of Economic Research.
  3. Arminio Fraga & Ilan Goldfajn & Andre Minella, 2003. "Inflation Targeting in Emerging Market Economies," NBER Working Papers 10019, National Bureau of Economic Research, Inc.
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  7. Jaroslava Hlouskova & Martin Wagner, 2005. "The Performance of Panel Unit Root and Stationarity Tests: Results from a Large Scale Simulation Study," Economics Working Papers ECO2005/05, European University Institute.
  8. Mishkin, Frederic S. & Savastano, Miguel A., 2001. "Monetary policy strategies for Latin America," Journal of Development Economics, Elsevier, vol. 66(2), pages 415-444, December.
  9. Ben S. Bernanke & Frederic S. Mishkin, 1997. "Inflation Targeting: A New Framework for Monetary Policy?," NBER Working Papers 5893, National Bureau of Economic Research, Inc.
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  12. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  13. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
  14. Frederic S. Mishkin & Adam S. Posen, 1997. "Inflation targeting: lessons from four countries," Economic Policy Review, Federal Reserve Bank of New York, issue Aug, pages 9-110.
  15. Reza Siregar & Siwei Goo, 2008. "Inflation Targeting Policy: The Experiences Of Indonesia And Thailand," CAMA Working Papers 2008-23, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  16. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
  17. Lin, Shu & Ye, Haichun, 2009. "Does inflation targeting make a difference in developing countries?," Journal of Development Economics, Elsevier, vol. 89(1), pages 118-123, May.
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