CREDIBILITY IN EMERGING ECONOMIES: DOES INFLATION TARGETING MATTER?

In this paper we evaluate the role of inflation targeting (IT) in enhancing monetary policy credibility in emerging economies. We construct a time‐varying credibility index, and then carry out extensive testing in order to assess whether IT had a significant impact on monetary policy credibility. Ou...

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Bibliographic Details
Published inThe Manchester school Vol. 79; no. 6; pp. 1080 - 1098
Main Authors LANZAFAME, MATTEO, NOGUEIRA JR, REGINALDO P.
Format Journal Article
LanguageEnglish
Published Oxford, UK Blackwell Publishing Ltd 01.12.2011
University of Manchester
SeriesManchester School
Subjects
Anti-inflation policy
Central banks
Credibility
Economic models
Emerging economies
Emerging markets
Inflation
Inflation rate
Inflation targeting
Interest rate policy
Monetary economics
Monetary policy
Money supply
Stabilization policy
Studies
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Summary:In this paper we evaluate the role of inflation targeting (IT) in enhancing monetary policy credibility in emerging economies. We construct a time‐varying credibility index, and then carry out extensive testing in order to assess whether IT had a significant impact on monetary policy credibility. Our results confirm that credibility was on average lower for targeters than non‐targeters before the regime change, and show that the gap was closed after the adoption of IT. However, taking mean reversion into account, we find no significant evidence that IT bolstered credibility levels.
Bibliography:ark:/67375/WNG-RDGD8PSF-K
istex:52949614AB8EB0A0E6C6564C036E9D9B0175FDD1
Manuscript received 11.8.09; final version received 4.12.09.
ArticleID:MANC2213
We would like to thank Alex Ferreira, Mathan Satchi, Miguel León‐Ledesma and two anonymous referees for their insightful comments and suggestions on earlier versions of this paper. We also thank Ugo Panizza for kindly providing us with the updated version of his data set on public debt around the world. The usual disclaimers apply.
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ISSN:1463-6786
1467-9957
DOI:10.1111/j.1467-9957.2010.02213.x