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Re-evaluating the effectiveness of inflation targeting

Omid M. Ardakani, N Kishor () and Suyong Song

Journal of Economic Dynamics and Control, 2018, vol. 90, issue C, 76-97

Abstract: This paper estimates the treatment effect of inflation targeting on macroeconomic variables using a semiparametric single index method by taking into account the model misspecification of parametric propensity scores. Our study uses a broader set of preconditions for inflation targeting and macroeconomic outcome variables than the existing literature. The results suggest no significant difference in the inflation level and inflation volatility between targeters and non-targeters after the adoption of inflation targeting. We find that inflation targeting reduces sacrifice ratio and interest rate volatility in the developed economies, and that it enhances fiscal discipline in both the industrial and developing countries.

Keywords: Inflation targeting; Propensity score; Treatment effects; Single index model (search for similar items in EconPapers)
JEL-codes: C14 E4 E5 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:dyncon:v:90:y:2018:i:c:p:76-97