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Inflation targeting and its spillover effects on financial stability in emerging market economies

Akanksha Mishra and Amlendu Dubey

Journal of Policy Modeling, 2022, vol. 44, issue 6, 1198-1218

Abstract: In this paper, we study whether adoption of inflation targeting monetary policy framework has spillover effects on financial stability in emerging market economies. Working with data for 64 emerging market economies, we develop financial stability and sector specific stability indices and identify the effect using dynamic panel data models in difference-in-difference framework. We find significant positive spillover effects of inflation targeting adoption on banking system resilience and external capital inflows arising from improved transparency and accountability of the central banks. Based on the results, the paper recommends to emerging market economies which are currently under inflation targeting lite regime, to adopt full-fledged inflation targeting monetary policy.

Keywords: Inflation Targeting; Financial Stability; Emerging Market Economies; Treatment Effect (search for similar items in EconPapers)
JEL-codes: C21 C23 E31 E44 E52 E58 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1016/j.jpolmod.2022.10.003

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