Posted

December 23, 2011 07:33:00 AM

Date

2011-11

Author

Edward R. Gemayel, Sarwat Jahan, and Alexandra Peter

Affiliation

Strategy, Policy, and Review Department, IMF

Title

What Can Low-Income Countries Expect from Adopting Inflation Targeting?

Summary /
Abstract

Inflation targeting (IT) is a relatively new monetary policy framework for low-income countries (LICs). The limited number of LICs with an IT framework and the short time that has elapsed since the adoption of this framework explains why there are no previous empirical studies on the performance of IT in LICs. This paper has made a first attempt at filling this gap. It finds that inflation targeting appears to be associated with lower inflation and inflation volatility. At the same time, there is no robust evidence of an adverse impact on output. This may explain the appeal of IT for many LICs, where building credibility of monetary policy is difficult and minimizing output costs of reducing inflation is imperative for social and political reasons.

Keywords

Albania , Armenia , Cross country analysis , Developed countries , Emerging markets , Ghana , Inflation targeting , Low-income developing countries , Monetary policy

URL

http://www.imf.org/external/pubs/ft/wp/2011/wp11276.pdf

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