Does Inflation Targeting Really Make a Difference in Developing Countries?
Posted: 7 Jan 2014
Date Written: October 4, 2007
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: Suggested Citation