26 Pages Posted: 6 Apr 2015
Date Written: March 29, 2015
Economists and policy-makers have long sought the ideal framework for monetary policy as it is arguably one of the most important tools for government to influence the economy. Exchange rate and inflation are believed to be the most appealing anchors for providing guidance to the conduct of monetary policy and are thus widely used in the real world. Most existing studies on the effect of exchange-rate arrangements and inflation targeting on economic growth suffer from the absence of a clear counterfactual, rendering it difficult to interpret their results. Based on a new classification scheme on monetary policy regimes, this paper helps to fill that gap by investigating the effect of monetary policy regimes on growth. Our results consistently support that an inflation targeting regime has a positive impact on economic growth when compared with an exchange-rate targeting regime.
Keywords: Monetary Policy Regimes; Inflation Targeting; Exchange-rate Targeting; Economic Growth
JEL Classification: E42, E52, E58, F43
Suggested Citation: Suggested Citation
Wong, Kin Ming and Chong, Terence Tai-Leung, What Should Central Banks Target? Evidence on the Impact of Monetary Policy Regimes on Economic Growth (March 29, 2015). Available at SSRN: https://ssrn.com/abstract=2589801 or http://dx.doi.org/10.2139/ssrn.2589801