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Does Institutional Quality matter to the Inflation Targeting-Financial Stability Nexus?

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  • Adel Bogari

Abstract

This study examines the quality institutions role played in the inflation targeting- financial stability nexus. A sample of 65 developed and developing countries, including 33 inflation-targeting countries (10 developed and 23 developing), and 32 non-inflation-targeting countries (12 developed and 20 developing), during the 1996 - 2020 period. Using Two Step GMM estimation, results show that inflation targeting stimulates financial stability. This positive relationship between inflation targeting and financial stability is proved, regardless of the inflation targeting regime in place; Soft or Full-Fledged. Results from institutional quality variables prove that inflation-targeting countries with poor institutional quality are financially vulnerable, and that for good institutional quality are able to promote financial stability.

Suggested Citation

  • Adel Bogari, 2023. "Does Institutional Quality matter to the Inflation Targeting-Financial Stability Nexus?," Bulletin of Applied Economics, Risk Market Journals, vol. 10(2), pages 141-158.
    • Handle: RePEc:rmk:rmkbae:v:10:y:2023:i:2:p:141-158
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    More about this item

    Keywords

    Inflation targeting; Financial stability; Developed and developing countries; Quality of institutions; Tow Step GMM System.;
    All these keywords.

    JEL classification:

    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • 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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