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Credibility of inflation targeting: some recent Asian evidence

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  • Dinabandhu Sethi

    (University of Hyderabad)

  • Debashis Acharya

    (University of Hyderabad)

Abstract

Inflation targeting (IT) has been popular in emerging economies despite its early adoption in advanced countries. This paper seeks to find out whether the presence of the IT regime for the Asian countries enhance credibility of the central banks. The study makes use of two episode methods in the calculation of sacrifice ratio for the period 1970–2014 for 13 Asian economies. Empirical findings based on annual data suggest that an IT regime indeed enhances credibility of the central banks. The low sacrifice ratio in IT countries is explained by the implementation of IT regime. The IT policy has potential to reduce sacrifice ratios by 3.7–5.7 points. Among other determinants initial inflation is found to be significant in Asian economies. However, the speed of disinflation remains insignificant irrespective of the method used in the analysis. These findings do not support the idea that IT and speed can be used alternatively as credible monetary policy.

Suggested Citation

  • Dinabandhu Sethi & Debashis Acharya, 2019. "Credibility of inflation targeting: some recent Asian evidence," Economic Change and Restructuring, Springer, vol. 52(3), pages 203-219, August.
    • Handle: RePEc:kap:ecopln:v:52:y:2019:i:3:d:10.1007_s10644-017-9224-3
    DOI: 10.1007/s10644-017-9224-3
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    2. Petrevski, Goran, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," EconStor Preprints 271122, ZBW - Leibniz Information Centre for Economics.
    3. Goran Petrevski, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," Papers 2305.17474, arXiv.org.
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    5. Martin Stojanovikj & Goran Petrevski, 2024. "Inflation targeting and disinflation costs in Emerging Market economies," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 51(1), pages 283-312, February.

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    More about this item

    Keywords

    Disinflation policy; Sacrifice ratio; Episode method; Inflation targeting;
    All these keywords.

    JEL classification:

    • 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

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