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Does Inflation Targeting Matter for Foreign Portfolio Investment: Evidence from Propensity Score Matching

Adel Boughrara and Ichrak Dridi
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Adel Boughrara and Ichrak Dridi: LaREMFiQ Laboratory, High Institute of Commercial Studies (IHEC), University of Sousse

Journal of Economic Development, 2017, vol. 42, issue 2, 67-86

Abstract: The aim of this paper is twofold. Firstly, it seeks to investigate the nature of the relationship between inflation targeting (hereafter, IT) regime and foreign portfolio investment (hereafter, FPI) inflows. Secondly, it inquires whether IT is able to control for FPI volatility in emerging countries or not. The sample covers the period 1986-2010 and contains 38 emerging countries, of which 13 countries have adopted IT. By addressing the self-selection bias associated to the adoption of IT via a variety of propensity score matching techniques, the paper results show that the adoption of a full-fledged IT increases FPI inflows into emerging countries, but they show no robust results for containing FPI volatility.

Keywords: Inflation Targeting; Propensity Score Matching; Portfolio Investment; Emerging Market Countries (search for similar items in EconPapers)
JEL-codes: E52 E58 E42 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:jed:journl:v:42:y:2017:i:2:p:67-86