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The Choice of Inflation Targeting

Author

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  • Gustavo Leyva

Abstract

This paper assesses empirically the contribution of key macroeconomic and institutional variables in shaping the likelihood of choosing the Inflation Targeting (IT) regime in a sample that comprises countries working under such a regime and covers the period 1975-2005. I find inflation rate, financial development, GDP per capita and trade openness relevant for driving the choice of IT by estimating a discrete choice panel data model. Also, my results suggest that the initial conditions at the moment of IT adoption do matter because countries have different exposure to the likelihood of choosing IT as a result of their specific macroeconomic and institutional fundamentals and unobservable idiosyncratic factors.

Suggested Citation

  • Gustavo Leyva, 2008. "The Choice of Inflation Targeting," Working Papers Central Bank of Chile 475, Central Bank of Chile.
  • Handle: RePEc:chb:bcchwp:475
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    File URL: http://si2.bcentral.cl/public/pdf/documentos-trabajo/pdf/dtbc475.pdf
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    References listed on IDEAS

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    1. Arminio Fraga & Ilan Goldfajn & André Minella, 2004. "Inflation Targeting in Emerging Market Economies," NBER Chapters,in: NBER Macroeconomics Annual 2003, Volume 18, pages 365-416 National Bureau of Economic Research, Inc.
    2. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "The Modern History of Exchange Rate Arrangements: A Reinterpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 1-48.
    3. Marco Vega & Diego Winkelried, 2005. "Inflation Targeting and Inflation Behavior: A Successful Story?," International Journal of Central Banking, International Journal of Central Banking, vol. 1(3), December.
    4. Klaus Schmidt-Hebbel & Alejandro M. Werner, 2002. "Inflation Targeting in Brazil, Chile, and Mexico: Performance, Credibility, and the Exchange Rate," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, vol. 0(Spring 20), pages 31-90, January.
    5. repec:hrv:faseco:34721963 is not listed on IDEAS
    6. White, Halbert, 1982. "Maximum Likelihood Estimation of Misspecified Models," Econometrica, Econometric Society, vol. 50(1), pages 1-25, January.
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    Cited by:

    1. Zied SAYARI & Rima LAJNAF, 2017. "Inflation targeting and volatility: Panel evidence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 57-68, Spring.
    2. Hanna Samaryna & Jakob de Haan, 2011. "Right on Target: Exploring the Determinants of Inflation Targeting Adoption," DNB Working Papers 321, Netherlands Central Bank, Research Department.
    3. Zied SAYARI & Rima LAJNAF, 2017. "Inflation targeting and volatility: Panel evidence," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(1(610), S), pages 57-68, Spring.
    4. Klaus Schmidt-Hebbel., 2009. "Inflation Targeting Twenty Years on: Where, When, Why, With what Effects, What lies ahead?," Documentos de Trabajo 360, Instituto de Economia. Pontificia Universidad Católica de Chile..
    5. 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.
    6. García-Solanes, José & Torrejón-Flores, Fernando, 2012. "Inflation targeting works well in Latin America," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), April.
    7. Ardakani, Omid & Kishor, N. Kundan, 2014. "Examining the Success of the Central Banks in Inflation Targeting Countries: The Dynamics of Inflation Gap and the Institutional Characteristics," MPRA Paper 58402, University Library of Munich, Germany.
    8. Anna Samarina & Jakob De Haan, 2014. "Right On Target: Exploring The Factors Leading To Inflation Targeting Adoption," Contemporary Economic Policy, Western Economic Association International, vol. 32(2), pages 372-389, April.
    9. repec:eee:reveco:v:50:y:2017:i:c:p:196-244 is not listed on IDEAS

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