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Do Monetary, Fiscal and Financial Institutions Really Matter for Inflation Targeting in Emerging Market Economies?

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  • Seedwell Hove
  • Albert Touna Mama
  • Fulbert Tchana Tchana

Abstract

Most emerging market economies (EMEs) which have implemented inflation targeting (IT) have continued to experience large, frequent and sometimes persistent inflation target misses. At the same time these countries had reformed their institutional structures when implementing IT. In this paper we empirically study the importance of central bank independence, fiscal discipline and financial sector development for the achievement of inflation targets in EMEs using the panel ordered logit model. We find that when we control for variables such as output gap, exchange rate gap and openness, the improvement in central bank independence, fiscal discipline and financial systems reduces the probability of inflation target misses. Importantly, some control variables lead to the missing of inflation target bands. These are, in order of importance; exchange rate gap, output gap, inflation target horizon and level of openness. The combined impact of institutional structures is quite large, indicating their signifi…cant contribution to the infl‡ation performance and credibility of IT.

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  • Seedwell Hove & Albert Touna Mama & Fulbert Tchana Tchana, 2011. "Do Monetary, Fiscal and Financial Institutions Really Matter for Inflation Targeting in Emerging Market Economies?," Working Papers 247, Economic Research Southern Africa.
  • Handle: RePEc:rza:wpaper:247
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    Cited by:

    1. Fazio, Dimas Mateus & Silva, Thiago Christiano & Tabak, Benjamin Miranda & Cajueiro, Daniel Oliveira, 2018. "Inflation targeting and financial stability: Does the quality of institutions matter?," Economic Modelling, Elsevier, vol. 71(C), pages 1-15.
    2. Abdelkader Aguir & Mounir Smida, 2015. "Efficiency of monetary policy under inflation targeting," Economics Bulletin, AccessEcon, vol. 35(1), pages 788-813.
    3. Bhattacharya. Rudrani, 2017. "Effectiveness of monetary policy in stabilising food inflation: Evidence from advanced and emerging economies," Working Papers 17/209, National Institute of Public Finance and Policy.

    More about this item

    Keywords

    In‡flation targeting; Institutions; Credibility;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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