Inflation targeting and firm performance in developing countries

Bao We Wal Bambe, Jean-Louis Combes, Kabinet Kaba and Alexandru Minea
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Bao We Wal Bambe: LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne
Kabinet Kaba: CERDI - Centre d'Études et de Recherches sur le Développement International - IRD - Institut de Recherche pour le Développement - CNRS - Centre National de la Recherche Scientifique - UCA - Université Clermont Auvergne
Alexandru Minea: UCA - Université Clermont Auvergne, LEO - Laboratoire d'Économie d'Orleans [2022-...] - UO - Université d'Orléans - UT - Université de Tours - UCA - Université Clermont Auvergne, University of Ottawa [Ottawa]

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Abstract: We examine the impact of inflation targeting on manufacturing firm performance in developing countries. Using a panel of 31,027 firms in 47 countries from 2006 to 2020 and applying the entropy balancing method to mitigate selection issues, we find that inflation targeting significantly increases firm growth and productivity. The findings are economically significant and robust to various checks. Moreover, we provide evidence that our results are not biased towards unobservables nor are they confounded with the effects induced by other reforms, such as IMF programs. We further show that economic and institutional factors such as the quality of judicial processes, fiscal discipline, central bank deviations from the target, and the time length since the policy adoption also influence the link between the monetary regime and firm performance. Last, we explore the main transmission channels and identify macroeconomic stability as the key driver of the regime's effectiveness.

Keywords: Inflation targeting; Manufacturing firm performance; Developing countries; Entropy balancing (search for similar items in EconPapers)
Date: 2024-06
New Economics Papers: this item is included in nep-bec, nep-cba, nep-cse and nep-mon
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Published in Journal of Economic Dynamics and Control, 2024, 163, pp.104854. ⟨10.1016/j.jedc.2024.104854⟩

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Journal Article: Inflation targeting and firm performance in developing countries (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04734823

DOI: 10.1016/j.jedc.2024.104854

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