Inflation Targeting in Emerging Market Economies

51 Pages Posted: 13 Oct 2003 Last revised: 18 Sep 2009

See all articles by Arminio Fraga

Arminio Fraga

Independent

Ilan Goldfajn

Gávea Investimentos; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics; Central Bank of Brazil

Andre Minella

Central Bank of Brazil

Date Written: October 2003

Abstract

This paper assesses inflation targeting in emerging market economies (EMEs), and develops applied prescriptions for the conduct of monetary policy and inflation-targeting design in EMEs. We verify that EMEs have faced more acute trade-offs higher output and inflation volatility and worse performance than developed economies. These results stem from more pronounced external shocks, lower credibility, and lower level of development of institutions in these countries. In order to improve their performance, we recommend high levels of transparency and communication with the public and the development of more stable institutions. At an operational level, we propose a procedure that a central bank under inflation targeting can apply and communicate when facing strong supply shocks, and suggest a monitoring structure for an inflation-targeting regime under an IMF program.

Suggested Citation

Fraga, Arminio and Goldfajn, Ilan and Minella, Andre, Inflation Targeting in Emerging Market Economies (October 2003). NBER Working Paper No. w10019. Available at SSRN: https://ssrn.com/abstract=457541

Arminio Fraga

Independent

No Address Available

Ilan Goldfajn (Contact Author)

Gávea Investimentos ( email )

Rua Dias Ferreira, 190 7th andar
22431-050 Rio de Janeiro
Brazil

Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics ( email )

Rua Marques de Sao Vicente, 225/206F
Rio de Janeiro, RJ 22453
Brazil

Central Bank of Brazil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia DF 70074-900, Distr. Federal 70074-900
Brazil
61-4143232 (Phone)
61-2260767 (Fax)

Andre Minella

Central Bank of Brazil ( email )

SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70.000-000 DF 70074
Brazil
+55 61 414 3653 (Phone)
+55 61 226 0767 (Fax)

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