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Inflation Targeting: A three-decade perspective


  • Abo-Zaid, Salem
  • Tuzemen, Didem


Using cross-country data for developed and developing countries over the period 1980–2007, we study the effects of the Inflation Targeting regime on levels and volatilities of inflation, GDP growth and fiscal imbalances. Our results indicate that the targeting developing countries are associated with lower and more stable inflation, as well as higher and more stable GDP growth. The targeting developed nations experience higher GDP growth and conduct more disciplined fiscal policy after adopting the regime. The improvements in fiscal imbalances may be at least partly attributed to the attempts to achieve an inflation target. We conclude that non-targeting countries, would highly benefit from targeting inflation.

Suggested Citation

  • Abo-Zaid, Salem & Tuzemen, Didem, 2012. "Inflation Targeting: A three-decade perspective," Journal of Policy Modeling, Elsevier, vol. 34(5), pages 621-645.
  • Handle: RePEc:eee:jpolmo:v:34:y:2012:i:5:p:621-645 DOI: 10.1016/j.jpolmod.2011.08.004

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    References listed on IDEAS

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    Cited by:

    1. Baxa, Jaromír & Plašil, Miroslav & Vašíček, Bořek, 2015. "Changes in inflation dynamics under inflation targeting? Evidence from Central European countries," Economic Modelling, Elsevier, vol. 44(C), pages 116-130.
    2. Pierre-Richard Agénor & Luiz A. Pereira da Silva, 2013. "Inflation Targeting and Financial Stability: A Perspective from the Developing World," Working Papers Series 324, Central Bank of Brazil, Research Department.
    3. Valera, Harold Glenn A. & Holmes, Mark J. & Hassan, Gazi M., 2017. "How credible is inflation targeting in Asia? A quantile unit root perspective," Economic Modelling, Elsevier, vol. 60(C), pages 194-210.
    4. Renée A. Fry-McKibbin & Chen Wang, 2014. "Does Inflation Targeting Outperform Alternative Policies during Global Downturns?," CAMA Working Papers 2014-64, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    5. Imran Hussain Shah & Ahmad Hassan Ahmad, 2017. "How important is the financial sector to price indices in an inflation targeting regime? An empirical analysis of the UK and the US," Review of Quantitative Finance and Accounting, Springer, vol. 48(4), pages 1063-1082, May.
    6. Perevyshin, Yuri, 2017. "Peculiarities of Interaction of Monetary and Fiscal Policy Under the Inflation Targeting Regime," Working Papers 031711, Russian Presidential Academy of National Economy and Public Administration.
    7. Kiss, Gábor Dávid & Kovács, György & Varga, János Zoltán, 2016. "Várakozások és a monetáris politika - különös tekintettel a magyarországi gyakorlatra
      [Expectations and monetary policy, with special attention to practice in Hungary]
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1192-1216.
    8. Kadria, Mohamed & Ben Aissa, Mohamed Safouane, 2016. "Inflation targeting and public deficit in emerging countries: A time varying treatment effect approach," Economic Modelling, Elsevier, vol. 52(PA), pages 108-114.
    9. de Guimarães e Souza, Gustavo José & de Mendonça, Helder Ferreira & de Andrade, Joaquim Pinto, 2016. "Inflation targeting on output growth: A pulse dummy analysis of dynamic macroeconomic panel data," Economic Systems, Elsevier, vol. 40(1), pages 145-169.
    10. Hayat, Zafar & Balli, Faruk & Obben, James & Shakur, Shamim, 2016. "An empirical assessment of monetary discretion: The case of Pakistan," Journal of Policy Modeling, Elsevier, vol. 38(5), pages 954-970.
    11. Davide Debortoli & Ricardo Nunes, 2014. "Monetary Regime Switches and Central Bank Preferences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(8), pages 1591-1626, December.
    12. Alexandru MINEA & Jean-Louis COMBES & Weneyam Hippolyte BALIMA, 2015. "Sovereign Debt Risk in Emerging Countries: Does Inflation Targeting Adoption Make Any Difference?," Working Papers 201504, CERDI.
    13. Selim KAYHAN & Muhsin KAR & Ahmet ŞAHBAZ, 2015. "Is CPI a suitable tool for inflation targeting? A critical view," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(604), A), pages 21-38, Autumn.
    14. Nojković, Aleksandra & Petrović, Pavle, 2015. "Monetary policy rule in inflation targeting emerging European countries: A discrete choice approach," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 577-595.
    15. István Ábel & Orsolya Csortos & Kristóf Lehmann & Annamária Madarász & Zoltán Szalai, 2014. "Inflation targeting in the light of lessons from the financial crisis," Financial and Economic Review, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 13(4), pages 35-56.
    16. Christian H Ebeke & Armand Fouejieu, 2015. "Inflation Targeting and Exchange Rate Regimes in Emerging Markets," IMF Working Papers 15/228, International Monetary Fund.
    17. Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2017. "The relevance and relative robustness of sources of inflation bias in Pakistan," Economic Modelling, Elsevier, vol. 63(C), pages 283-303.
    18. Minea, Alexandru & Tapsoba, René, 2014. "Does inflation targeting improve fiscal discipline?," Journal of International Money and Finance, Elsevier, vol. 40(C), pages 185-203.
    19. Ayres, Kelly & Belasen, Ariel R. & Kutan, Ali M., 2014. "Does inflation targeting lower inflation and spur growth?," Journal of Policy Modeling, Elsevier, vol. 36(2), pages 373-388.
    20. Dániel Felcser & Laura Komlóssy & Árpád Vadkerti & Balázs H. Váradi, 2016. "Inflation targeting," MNB Handbook, Magyar Nemzeti Bank (Central Bank of Hungary), vol. 1(3), pages 1-64.

    More about this item


    Inflation Targeting; Monetary policy; Fiscal policy;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy


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