Towards External Debt Reduction through Inflation Targeting: An Empirical Evaluation of Middle-Income Countries

Abdelhamid Moustabchir, Hicham El Ouazzani, Hicham Ouakil () and Augustin Foster Chabossou

Politická ekonomie, vol. preprint

Abstract: This study analyzes the impact of inflation targeting on the external debt of middle-income countries using the propensity score matching method (PSM). The results indicate that the adoption of inflation targeting is associated with a notable decrease in external debt, with an average reduction estimated at approximately 15.16 percentage points. This reduction reflects the enhanced credibility of monetary policy, which lowers the risk of default on public debt. These findings suggest that inflation targeting can be a useful tool for managing external debt and alleviating pressures on public finances, but its effectiveness depends on its integration within a broader economic policy framework tailored to each country\'s specific conditions.

Keywords: Inflation targeting; external debt; middle-income countries; propensity score matching; macroeconomic policy (search for similar items in EconPapers)
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