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The Impact of Inflation Targeting on Unemployment in Developing and Emerging Economies

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  • Jose Angelo Divino

    () (Catholic University of Brasilia)

Abstract

Several countries around the world have adopted the inflation targeting regime for monetary policy. Despite the growing literature on the issue, it is not clear whether developing and emerging countries can improve their economic performance by adopting inflation targeting. This working paper examines the extent to which macroeconomic policies anchored to inflation targeting affect unemployment, economic growth and the output gap. The results show that inflation targeting causes no harm to employment in developing and emerging countries. On the contrary, it might reduce average unemployment and narrow the output gap. Given that the change in regime must be accompanied by institutional and economic reforms to fiscal and exchange rate policies, targeters might be better off than non-targeters. Hence there is no apparent reason to condemn the adoption of the inflation targeting regime by developing and emerging countries. (...)

Suggested Citation

  • Jose Angelo Divino, 2009. "The Impact of Inflation Targeting on Unemployment in Developing and Emerging Economies," Working Papers 56, International Policy Centre for Inclusive Growth.
  • Handle: RePEc:ipc:wpaper:56
    as

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    File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper56.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    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. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear of Floating," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 379-408.
    3. Frederic S. Miskin & Klaus Schmidt-Hebbel, 2007. "Does Inflation Targeting Make a Difference?," Central Banking, Analysis, and Economic Policies Book Series,in: Frederic S. Miskin & Klaus Schmidt-Hebbel & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Se (ed.), Monetary Policy under Inflation Targeting, edition 1, volume 11, chapter 9, pages 291-372 Central Bank of Chile.
    4. Jose Angelo Divino, 2006. "Cross-Country Evidence On Monetary Policy Rules," Anais do XXXIV Encontro Nacional de Economia [Proceedings of the 34th Brazilian Economics Meeting] 178, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    5. Carare, Alina & Stone, Mark R., 2006. "Inflation targeting regimes," European Economic Review, Elsevier, vol. 50(5), pages 1297-1315, July.
    6. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    Keywords

    The Impact of Inflation Targeting on Unemployment in Developing and Emerging Economies;

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