Macroeconomic effects of inflation targeting in advanced and emerging market economies

Igor Chugunov,Anton Nepytaliuk,Mykola Pasichnyi

doi:10.21511/bbs.14(4).2019.15

Abstract

The article assessed the treatment effects of targeting inflation regime on the real output and consumer inflation persistence in both advanced and emerging market economies. An empirical analysis is based on data from 35 OECD and 40 emerging countries and covers inflation and non-inflation targets over the period 1990–2017. The results showed that inflation targeting (henceforth – IT) had no significant impact on the GDP per capita growth rate but slightly reduced the output volatility. This study founded out that full-fledged IT had the effect of slowing down consumer inflation and reducing its volatility. Moreover, in the OECD countries, the monetary framework had certain advantages during the Great Recession. The authors argued that in order to maintain price stability in emerging economies, a high level of central bank independence and accountability is required.

Highlights

In today’s economic discourse, there is a general agreement that monetary policy should practically address the objective of price stability
In the first half of er price index at the IT adoption date for all the the 1990s, this approach to controlling inflation countries under study equaled 5.63%. This indicatwas adopted by the central banks of many advanced ed that IT implementation did not lead to a rapid countries such as Canada, Great Britain, Sweden, decline in inflation
This study suggests that rigid and consistagents can be narrowed to the conditions: ent monetary policy in the IT adoption plays a crucial role in anchoring inflation expectations a) the quantitative inflation targeting should be and reducing the CPI persistence

Summary

Introduction

In today’s economic discourse, there is a general agreement that monetary policy should practically address the objective of price stability. Achieving price stability is a crucial practical task for the monetary authorities for many reasons. High and uncontrolled inflation contradicts the universal objectives of sustainable growth and full employment. A high consumer price index triggers inflation expectations and declines the economic agents’ confidence in the financial policies. Inflation is a usual feature of the economic system and, in general, can even stimulate its development if the monetary policy goals are set properly. There are some strategic options for the central bank behavior design that can reactivate endogenous economic growth. Inflation targeting is a monetary regime that, if fully adopted, eliminates many inflation-related risks and enhances the financial environment transparency

Objectives

Results

Conclusion