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Inflation Targeting: Does It Improve Economic Performance?

Stephen Miller (), WenShwo Fang () and Ozkan Eren ()
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WenShwo Fang: Department of Economics, Feng Chia University
Ozkan Eren: Department of Economics, University of Nevada, Las Vegas

No 1207, Working Papers from University of Nevada, Las Vegas , Department of Economics

Abstract: The last two decades witnessed a dramatic transformation of how central banks operate. An increasing number of central banks now use inflation targeting as their monetary policy control mechanism. A series of papers attempt to measure the effectiveness of inflation targeting on economic performance. The basic challenge in such tests is that inflation targeting appeared during a time when inflation trended downward across nearly all countries – those that did and did not adopt inflation targeting. This paper reviews the existing methods used to test for the effectiveness of inflation targeting and compares the findings of these different methods for both developed and developing countries. In general, inflation targeting does not affect economic performance in developed countries but does exert a positive effect on economic performance in developing countries. We conclude that the effectiveness of inflation targeting policy garners little, or only transitory, support based on evidence from developed countries. Much more support exists for developing countries.

Keywords: inflation targeting; difference in differences; fixed and random effects; treatment effects; developed and developing countries (search for similar items in EconPapers)
JEL-codes: C52 E52 E58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba and nep-mon
Date: 2012-12
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