What Can Low-Income Countries Expect From Adopting Inflation Targeting?

By Alexandra Born, Sarwat Jahan, Edward R Gemayel

November 1, 2011

Preview Citation

Format: Chicago

Alexandra Born, Sarwat Jahan, and Edward R Gemayel. What Can Low-Income Countries Expect From Adopting Inflation Targeting?, (USA: International Monetary Fund, 2011) accessed December 22, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

Inflation targeting (IT) is a relatively new monetary policy framework for low-income countries (LICs). The limited number of LICs with an IT framework and the short time that has elapsed since the adoption of this framework explains why there are no previous empirical studies on the performance of IT in LICs. This paper has made a first attempt at filling this gap. It finds that inflation targeting appears to be associated with lower inflation and inflation volatility. At the same time, there is no robust evidence of an adverse impact on output. This may explain the appeal of IT for many LICs, where building credibility of monetary policy is difficult and minimizing output costs of reducing inflation is imperative for social and political reasons.

Subject: Emerging and frontier financial markets, Financial markets, Inflation, Inflation targeting, Monetary policy, Monetary policy frameworks, Monetary transmission mechanism, Prices

Keywords: Adoption date, Control group, Emerging and frontier financial markets, Global, Inflation, Inflation targeting, Inflation targeting dummy, Inflation volatility, Inflation-targeting infrastructure, IT adoption, IT country, IT framework, Low-Income Countries, Monetary policy, Monetary Policy, Monetary policy frameworks, Monetary transmission mechanism, WP

Publication Details

Pages:

45
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/276
Stock No:

WPIEA2011276
ISBN:

9781463925932
ISSN:

1018-5941

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