On the Effectiveness of Inflation Targeting: Evidence from a Semiparametric Approach

Omid Ardakani, N Kishor and Suyong Song

MPRA Paper from University Library of Munich, Germany

Abstract: This paper estimates the treatment effect of inflation targeting for all explicit inflation targeting countries by taking into account the problem of model misspecification and inconsistent estimation of parametric propensity scores by using a semiparametric single index method. In addition, our study uses a broader set of preconditions for inflation targeting and macroeconomic outcome variables than the existing literature. Overall our results suggest no significant difference in level of inflation and inflation volatility in targeters versus non-targeters after the adoption of inflation targeting. Unlike parametric and non-parametric method, we find that inflation targeting leads to a significant decline in the sacrifice ratio and interest rate volatility in developed economies. The results suggest that inflation targeting framework enhances fiscal discipline in both industrial and developing countries.

Keywords: Inflation Targeting; Propensity Score; Treatment Effects; Sieve Estimator; Single Index Model. (search for similar items in EconPapers)
JEL-codes: C14 C21 E4 E5 (search for similar items in EconPapers)
Date: 2015-01-08
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:75091

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