Economics at your fingertips  

Inflation targeting and income velocity in developing economies: Some international evidence

Than Than Soe and Makoto Kakinaka

The North American Journal of Economics and Finance, 2018, vol. 44, issue C, 44-61

Abstract: Developing economies tend to prefer or rely upon monetary policy rule with monetary aggregates due to institutional constraints on monetary policy conduct. One crucial condition for monetary aggregates to be a sound instrument is the stability of income velocity. Recently, inflation targeting has been adopted as an alternative monetary policy framework in various developing countries. This study attempts to examine how inflation targeting relates to the variability of income velocity and its components across 84 developing countries during the period from 1990 to 2013. The results suggest that inflation targeting would help stabilize income velocity in developing countries. In addition, a decomposition analysis of income velocity generally shows that inflation targeting would reduce the volatilities of inflation, real output growth, and money growth. Our results provide empirical support for the argument that stable income velocity associated with inflation targeting could improve the effectiveness of monetarism, such that monetary aggregates can serve as an appropriate instrument under inflation targeting regime in developing countries.

Keywords: Inflation targeting; Income velocity; Monetary policy rule; Developing countries (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

DOI: 10.1016/j.najef.2017.11.001

Access Statistics for this article

The North American Journal of Economics and Finance is currently edited by Hamid Beladi

More articles in The North American Journal of Economics and Finance from Elsevier
Bibliographic data for series maintained by Haili He ().

Page updated 2020-09-09
Handle: RePEc:eee:ecofin:v:44:y:2018:i:c:p:44-61