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Does inflation targeting cause financial instability?: An empirical test of paradox of credibility hypothesis

Umar Musa and Wen Jun

The North American Journal of Economics and Finance, 2020, vol. 52, issue C

Abstract: •This study investigates if the worldwide adoption of IT causes financial instability.•We use composite indexes of financial instability.•Empirical results using dynamic panel estimators and non-parametric approaches support “the paradox of credibility hypothesis.”•Global liquidity and central bank supervision are the main channels through which IT causes financial instability.

Date: 2020
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DOI: 10.1016/j.najef.2020.101164

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