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The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?

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  • Lucotte, Yannick

Abstract

Over the last decade, a growing number of emerging countries has adopted inflation targeting as monetary policy framework. In a recent paper, Freedman and Laxton (2009) ask the question “Why Inflation Targeting?”. This paper empirically investigates this question by analyzing a large set of institutional and political factors potentially associated with a country’s choice of adopting IT. Using panel data on a sample of thirty inflation targeting and non-inflation emerging countries, for the period 1980-2006, our results suggest that central bank independence, policy-makers’ incentives, and characteristics of political system play an important role in the choice of IT, while the level of financial development and political stability do not seem to matter. Empirical findings are confirmed by extensive robustness tests.

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  • Lucotte, Yannick, 2010. "The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?," MPRA Paper 27118, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:27118
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    Cited by:

    1. 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.
    2. BEN ROMDHANE, Ikram & MENSI, Sami, 2014. "Assessing the macroeconomic effects of inflation targeting: Evidence from OECD Economies," MPRA Paper 60108, University Library of Munich, Germany, revised 14 Nov 2014.
    3. Harold Glenn A. Valera & Mark J. Holmes & Gazi M. Hassan, 2018. "Is inflation targeting credible in Asia? A panel GARCH approach," Empirical Economics, Springer, vol. 54(2), pages 523-546, March.
    4. Jac C. Heckelman & Bonnie Wilson, 2021. "Targeting inflation targeting: the influence of interest groups," Public Choice, Springer, vol. 189(3), pages 533-554, December.
    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. Atsuyoshi Morozumi & Michael Bleaney & Zakari Mumuni, 2020. "Inflation targeting in low‐income countries: Does IT work?," Review of Development Economics, Wiley Blackwell, vol. 24(4), pages 1529-1550, November.
    7. 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.
    8. Adel Boughrara and Ichrak Dridi, 2017. "Does Inflation Targeting Matter for Foreign Portfolio Investment: Evidence from Propensity Score Matching," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 42(2), pages 67-86, June.

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    More about this item

    Keywords

    Inflation targeting; central bank independence; financial development; political institutions; emerging countries;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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