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What Can Low-Income Countries Expect From Adopting Inflation Targeting?

  • Alexandra Peter
  • Sarwat Jahan
  • Edward R. Gemayel
Registered author(s):

    Inflation targeting (IT) is a relatively new monetary policy framework for low-income countries (LICs). The limited number of LICs with an IT framework and the short time that has elapsed since the adoption of this framework explains why there are no previous empirical studies on the performance of IT in LICs. This paper has made a first attempt at filling this gap. It finds that inflation targeting appears to be associated with lower inflation and inflation volatility. At the same time, there is no robust evidence of an adverse impact on output. This may explain the appeal of IT for many LICs, where building credibility of monetary policy is difficult and minimizing output costs of reducing inflation is imperative for social and political reasons.

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    Paper provided by International Monetary Fund in its series IMF Working Papers with number 11/276.

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    Length: 45
    Date of creation: 01 Nov 2011
    Date of revision:
    Handle: RePEc:imf:imfwpa:11/276
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    1. Miguel A. Savastano & Paul R. Masson & Sunil Sharma, 1997. "The Scope for Inflation Targeting in Developing Countries," IMF Working Papers 97/130, International Monetary Fund.
    2. Marcel Peter & Scott Roger & Geoffrey Heenan, 2006. "Implementing Inflation Targeting; Institutional Arrangements, Target Design, and Communications," IMF Working Papers 06/278, International Monetary Fund.
    3. Marc Zelmer & Andrea Schaechter, 2000. "Adopting Inflation Targeting: Practical Issues for Emerging Market Countries," IMF Occasional Papers 202, International Monetary Fund.
    4. Vittorio Corbo & Óscar Landerretche & Klaus Schmidt-Hebbel, 2002. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series, in: Norman Loayza & Raimundo Soto & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series Editor) (ed.), Inflation Targeting: Desing, Performance, Challenges, edition 1, volume 5, chapter 5, pages 221-270 Central Bank of Chile.
    5. Andrew T. Levin & Fabio M. Natalucci & Jeremy M. Piger, 2004. "The macroeconomic effects of inflation targeting," Review, Federal Reserve Bank of St. Louis, issue Jul, pages 51-80.
    6. Brito, Ricardo D. & Bystedt, Brianne, 2010. "Inflation targeting in emerging economies: Panel evidence," Journal of Development Economics, Elsevier, vol. 91(2), pages 198-210, March.
    7. Naqvi, Bushra & Rizvi, Syed Kumail Abbas, 2009. "Inflation Targeting Framework: Is the story different for Asian Economies?," MPRA Paper 19546, University Library of Munich, Germany.
    8. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
    9. Lin, Shu & Ye, Haichun, 2009. "Does inflation targeting make a difference in developing countries?," Journal of Development Economics, Elsevier, vol. 89(1), pages 118-123, May.
    10. Douglas Laxton & Charles Freedman, 2009. "Inflation Targeting Pillars; Transparency and Accountability," IMF Working Papers 09/262, International Monetary Fund.
    11. Goncalves, Carlos Eduardo S. & Salles, Joao M., 2008. "Inflation targeting in emerging economies: What do the data say?," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 312-318, February.
    12. Luke B. Willard, 2006. "Does Inflation Targeting Matter? A Reassessment," Working Papers 82, Princeton University, Department of Economics, Center for Economic Policy Studies..
    13. Anna Nordstrom & Scott Roger & Mark R. Stone & Seiichi Shimizu & Turgut Kisinbay & Jorge Restrepo, 2009. "The Role of the Exchange Rate in Inflation-Targeting Emerging Economies: Targeting Emerging Economies," IMF Occasional Papers 267, International Monetary Fund.
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