What Should Central Banks Target? Evidence on the Impact of Monetary Policy Regimes on Economic Growth

26 Pages Posted: 6 Apr 2015  

Kin Ming Wong

Chu Hai College of Higher Education - Faculty of Business

Terence Tai-Leung Chong

The Chinese University of Hong Kong (CUHK) - Institute of Global Economics and Finance

Date Written: March 29, 2015

Abstract

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

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

Kin Ming Wong (Contact Author)

Chu Hai College of Higher Education - Faculty of Business ( email )

80 Castle Peak Road, Castle Peak Bay,
N.T.
Hong Kong
Hong Kong

Terence Tai-Leung Chong

The Chinese University of Hong Kong (CUHK) - Institute of Global Economics and Finance ( email )

13 floor, Cheng Yu Tung Building
12 Chak Cheung Street
Hong Kong
Hong Kong

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