The Scope for Inflation Targeting in Developing Countries

53 Pages Posted: 4 May 2001

See all articles by Paul R. Masson

Paul R. Masson

International Monetary Fund (IMF) - Research Department; The Brookings Institution

Miguel A. Savastano

Monetary and Capital Markets Departrment

Sunil Sharma

George Washington University - Elliott School of International Affairs

Date Written: October 1997

Abstract

Inflation targeting (IT) serves as monetary policy framework in several advanced economies, where it has enhanced policy transparency and accountability. The paper considers its wider applicability to developing countries. The prerequisites for a successful IT framework are identified as involving ability to carry out an independent monetary policy (free of fiscal dominance or commitment to another nominal anchor, like the exchange rate), and a quantitative framework linking policy instruments to inflation. These prerequisites are largely absent among developing countries, though several of them could with some further institutional changes and an overriding commitment to low inflation make use of an IT framework.

Keywords: inflation targeting, developing countries

JEL Classification: E31, E42, E52

Suggested Citation

Masson, Paul R. and Savastano, Miguel A. and Sharma, Sunil, The Scope for Inflation Targeting in Developing Countries (October 1997). IMF Working Paper No. 97/130. Available at SSRN: https://ssrn.com/abstract=268907 or http://dx.doi.org/10.2139/ssrn.268907

Paul R. Masson

International Monetary Fund (IMF) - Research Department ( email )

700 19th Street NW
Washington, DC 20431
United States

The Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
202-797-6278 (Phone)
202-797-2968 (Fax)

Miguel A. Savastano (Contact Author)

Monetary and Capital Markets Departrment ( email )

700 19th Street NW
Washington, DC 20431
United States

Sunil Sharma

George Washington University - Elliott School of International Affairs ( email )

Institute for International Economic Policy
1957 E Street NW
Washington, DC 20052
United States

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