Can Inflation Targeting Work in Emerging Market Countries?

36 Pages Posted: 25 Aug 2004 Last revised: 5 Aug 2010

See all articles by Frederic S. Mishkin

Frederic S. Mishkin

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: July 2004

Abstract

This paper explores issues in emerging market countries to make inflation targeting work for them. It starts by outlining why emerging market economies are so different from advanced economies and then discuss why developing strong fiscal, financial and monetary institutions is so critical to the success of inflation targeting in emerging market countries. Then it discusses two emerging market countries which illustrate what it takes to make inflation targeting work well, Chile and Brazil. It then addresses a particularly complicated issue for central banks in emerging market countries who engage in inflation targeting: how they deal with exchange rate fluctuations. The next topic focuses on the IMF's role in promoting the success of inflation targeting in emerging market countries. The conclusion from this analysis is that inflation targeting is more complicated in emerging market countries and is thus not a panacea. However, inflation targeting done right can be a powerful tool to help promote macroeconomic stability in these countries.

Suggested Citation

Mishkin, Frederic S., Can Inflation Targeting Work in Emerging Market Countries? (July 2004). NBER Working Paper No. w10646, Available at SSRN: https://ssrn.com/abstract=579793

Frederic S. Mishkin (Contact Author)

Columbia Business School - Finance and Economics ( email )

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