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Inflation Targeting and Real GDP Dynamics: Cross-Country Evidence

Author

Listed:
  • Kartaev, P.

    (Lomonosov Moscow State University, Moscow, Russia)

  • Philippov, A.

    (New Economic School, Moscow, Russia)

  • Khazanov, A.

    (New Economic School Center for the Study of Diversity and Social Interactions, Moscow, Russia)

Abstract

The paper provides the analysis of short-run and long-run effects of inflation targeting policy adoption on real GDP dynamics. We examine the existing econometric approaches to the estimation of these effects, and based on the provided comparative analysis choose the dynamic panel regression methods for our purposes. In order to estimate the effect of inflation targeting adoption we use a dataset of 141 countries for the 1980-2012 period, which includes 2008 crisis to the range, that has been absent in existing papers. In our paper we distinguish between the short-run and long-run effects of inflation targeting adoption, and we obtain a result which is robust to econometric approach. We apply System GMM in order to estimate the model on the dataset of all 141 countries, and we obtain a result that the adoption of inflation targeting policy in general does not affect negatively the GDP dynamics. We also found out that the result could differ between developing and developed countries: while no negative effect is observed for developed economies, there is some evidence of negative impact in developing economies. Based on the provided analysis we conclude that the general notion about the neutrality of monetary policy for real indicators in long-run could hold also for the regimes of the monetary policy. At the same time the difference in the results for developed and developing economics leaves space for future research.

Suggested Citation

  • Kartaev, P. & Philippov, A. & Khazanov, A., 2016. "Inflation Targeting and Real GDP Dynamics: Cross-Country Evidence," Journal of the New Economic Association, New Economic Association, vol. 29(1), pages 107-128.
  • Handle: RePEc:nea:journl:y:2016:i:29:p:107-128
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    References listed on IDEAS

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    More about this item

    Keywords

    monetary policy; economic growth; inflation targeting; panel data;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • O42 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Monetary Growth Models

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