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Choice of inflation targeting: Some international evidence

Shakhzod Ismailov (), Makoto Kakinaka and Hiroaki Miyamoto
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Shakhzod Ismailov: Central Bank of Uzbekistan

No SDES-2016-2, Working Papers from Kochi University of Technology, School of Economics and Management

Abstract: Inflation targeting has attracted attention to researchers and policy makers since the first attempt in New Zealand in 1990. This paper discusses a country's choice of inflation targeting by examining its driving forces with the dataset of 82 countries. The empirical result shows that countries' decision of adoption of inflation targeting depends highly on their development stage. For high-income or developed countries, the significant motive of monetary authority to choose inflation targeting is the desire to keep or enhance anti-inflation credibility, and inflation targeting could be a natural option under more floats with the absence of nominal exchange rate anchor. On the other hand, low-income or developing countries with the large size of public debts are not likely to choose inflation targeting, so that fiscal fragility would discourage monetary authority to adopt restrictive monetary policy under inflation targeting.

Keywords: inflation targeting; exchange rate arrangements; anti-inflation credibility; fiscal fragility (search for similar items in EconPapers)
Pages: 35 pages
Date: 2016-03, Revised 2016-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Published in SDE Series, March 2016, pages 1-35

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http://www.souken.kochi-tech.ac.jp/seido/wp/SDES-2016-2.pdf First version, 2016 (application/pdf)

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