Does Inflation Targeting Really Make a Difference in Developing Countries?

Posted: 7 Jan 2014

See all articles by Shu Lin

Shu Lin

Department of Economics, The Chinese University of Hong Kong

Haichun Ye

Shanghai University of Finance and Economics - School of Economics

Date Written: October 4, 2007

Abstract

We evaluate the treatment effect of inflation targeting in thirteen developing countries that have adopted this policy by the end of 2004. Using a variety of propensity score matching methods, we show that, on average, inflation targeting has large and significant effects on lowering both inflation and inflation variability in these thirteen countries. However, the effectiveness of inflation targeting on lowering inflation is found to be quite heterogeneous. The performance of a given inflation targeting regime can be affected by country characteristics such as government's fiscal position, central bank's desire to limit the movements of exchange rate, its willingness to meet the preconditions of policy adoption, and the time length since the policy adoption.

Keywords: inflation targeting, inflation, propensity score matching, developing countries

JEL Classification: E4, E5

Suggested Citation

Lin, Shu and Ye, Haichun, Does Inflation Targeting Really Make a Difference in Developing Countries? (October 4, 2007). Journal of Development Economics, Vol. 89, No. 1, 2009, Available at SSRN: https://ssrn.com/abstract=2375549

Shu Lin

Department of Economics, The Chinese University of Hong Kong ( email )

Department of Economics
The Chinese University of Hong Kong
Shatin, N.T., 200433
Hong Kong

Haichun Ye (Contact Author)

Shanghai University of Finance and Economics - School of Economics ( email )

111 Wuchuan Road
Shanghai, 200434
China

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