Enhanced Economic Stability and the Role of Inflation Targeting Policy: Empirical Study on Case of Developing Countries

Abstract

Inflation targeting has become the predominant monetary approach across the globe. In this paper, we examine the inflation targeting experience in developing countries. We estimate the effects of inflation targeting on macroeconomic performance in these economies. The approach is based on the methodology applied by Pétursson (2005) which uses panel data to assess the effects of inflation targeting while controlling for the Great Moderation. The work analyze the relationship between inflation targeting and macroeconomic performance for two groups: treatment and control group over the period 1980-2012. A key lesson from this experience is that inflation targeting monetary policy realizes macroeconomic performance and contributes to the reduction of inflation, especially in countries with hyperinflation.