 Inflation targeting: Is IT to blame for banking system instability?Dimas Fazio, Benjamin Tabak and Daniel Cajueiro Journal of Banking & Finance, 2015, vol. 59, issue C, 76-97 Abstract: In light of the financial crisis, the practice of inflation targeting (IT) has been blamed for authorities’ failure to respond to the increase in financial systemic risk and to the development of asset bubbles. However, utilizing a rich database containing nearly 5500 commercial banks from 70 countries (among which, 22 are IT) for the period 1998–2012, this paper argues that on average, inflation targeting national banking systems (i) are more stable; (ii) possess sounder systemically important banks; and (iii) are less distressed than (or at least as distressed as) other banks during periods of global liquidity shortages. Our results are robust to a series of tests, such as when we compare countries with the same legal origins or control for the delegation of bank supervision responsibility to bodies other than the central bank. Overall, we conclude that IT cannot be blamed for contributing to financial fragility. Keywords: Inflation targeting; Financial stability; Monetary policy; Financial crisis; Bank regulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:59:y:2015:i:c:p:76-97 DOI: 10.1016/j.jbankfin.2015.05.016 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.