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

  • Jose Angelo Divino

    ()

    (Catholic University of Brasilia)

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. (...)

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File URL: http://www.ipc-undp.org/pub/IPCWorkingPaper56.pdf
File Function: First version, 2009
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Paper provided by International Policy Centre for Inclusive Growth in its series Working Papers with number 56.

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Length: 22
Date of creation: Jun 2009
Date of revision:
Publication status: Published by UNDP - International Policy Centre for Inclusive Growth , June 2009, pages 1-22
Handle: RePEc:ipc:wpaper:56
Contact details of provider: Web page: http://www.ipc-undp.org
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  1. Guillermo A. Calvo & Carmen M. Reinhart, 2002. "Fear Of Floating," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 379-408, May.
  2. Frederic S. Mishkin, 2004. "Can Inflation Targeting Work in Emerging Market Countries?," NBER Working Papers 10646, National Bureau of Economic Research, Inc.
  3. Arminio Fraga & Ilan Goldfajn & André Minella, 2003. "Inflation Targeting in Emerging Market Economies," Working Papers Series 76, Central Bank of Brazil, Research Department.
  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 Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
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