What drives the Choice of Money-based Targets in the World?

Cesar Calderon () and Klaus Schmidt-Hebbel

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: Money targeting (MT) was a highly popular monetary regime among central banks in both industrial and developing countries during the 1980s and 1990s. This paper presents a comprehensive empirical exploration of the possible explanations of why countries choose (and abandon) a MT regime. The paper uses a large world panel dataset for treatment and control country groups, applies five panel-data estimation techniques for discrete-choice dependent variables, and conducts robustness checks for different control groups and time periods. The paper’s evidence shows that the likelihood of having MT in place declines significantly and robustly with trade openness, financial development, a strong fiscal position, and monetary instability.

Date: 2008-08
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:479

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