Lucotte, Yannick (2010): The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?
Download (681kB) | Preview
Over the last decade, a growing number of emerging countries has adopted inflation targeting as monetary policy framework. In a recent paper, Freedman and Laxton (2009) ask the question “Why Inflation Targeting?”. This paper empirically investigates this question by analyzing a large set of institutional and political factors potentially associated with a country’s choice of adopting IT. Using panel data on a sample of thirty inflation targeting and non-inflation emerging countries, for the period 1980-2006, our results suggest that central bank independence, policy-makers’ incentives, and characteristics of political system play an important role in the choice of IT, while the level of financial development and political stability do not seem to matter. Empirical findings are confirmed by extensive robustness tests.
|Item Type:||MPRA Paper|
|Original Title:||The choice of adopting inflation targeting in emerging economies: Do domestic institutions matter?|
|Keywords:||Inflation targeting; central bank independence; financial development; political institutions; emerging countries|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Yannick Lucotte|
|Date Deposited:||30. Nov 2010 19:57|
|Last Modified:||12. Feb 2013 14:56|
Aizenman, J., Hutchinson, M. and I. Noy, 2008, Inflation targeting and real exchange rate in emerging markets, NBER Working Paper 14561, National Bureau of Economic Research, Cambridge.
Amato, J.D. and S. Gerlach, 2002, Inflation targeting in emerging market and transition economies: Lessons after a decade, European Economic Review 46, 781-790.
Bagheri, F.M. and N. Habibi, 1998, Political institutions and central bank independence: a cross-country analysis”, Public Choice 96, 187-204.
Ball, L. and N. Sheridan, 2003, Does inflation targeting matter?, NBER Working Paper 9577, National Bureau of Economic Research, Cambridge.
Baltensperger, E., Fischer, A.M. and T.J. Jordan, 2007, Strong goal independence and inflation targets, European Journal of Political Economy 23, 88-105.
Batini, N. and D. Laxton, 2006, Under what conditions can inflation targeting be adopted? The experience of emerging markets, Central Bank of Chile Working Paper 406.
Beck, T. and A. Demirgüç-Kunt, 2009, Financial institutions and markets across countries and over time – Data and analysis, World Bank Policy Research Working Paper 4943.
Beck, T., Clarke, G., Groff, A., Keefer, P. and P. Walsh, 2001, New tools in comparative political economy: the Database of Political Institutions, World Bank Economic Review 15, 165-176.
Bernanke, B.S., Laubach, T. Mishkin, F.S. and A.S. Posen, 1999, Inflation targeting: lessons from the international experience, Princeton University Press.
Burnside, C., Eichenbaum, M. and S. Rebelo, 2001, Prospective deficits and the Asian currency crisis, Journal of Political Economy 109, 1115-1197.
Calderón, C. and K. Schmidt-Hebbel, 2008, What drives the choice of inflation targets in the world?, mimeo.
Carare, A. and M. Stone, 2006, Inflation targeting regimes, European Economic Review 50, 1297-1315.
Carare, A., Schaechter, A. and M. Stone, 2002, Establishing initial conditions in support of inflation targeting, IMF Working Paper, WP/02/102.
Chelliah, R.J., 1971, Trends in taxation in developing countries, IMF Staff Papers 18, 254-331.
Cukierman, A., 1992, Central bank strategy, credibility, and independence, MIT Press, Cambridge, MA.
Dreher, A, Sturm, J.E. and J. De Haan, 2008, Does high inflation cause central bankers lose their job? Evidence based on a new dataset, European Journal of Political Economy 24, 778-787.
Edwards, S., 2006, The relationship between exchange rates and inflation targeting revisited, NBER Working Paper 12163, National Bureau of Economic Research, Cambridge.
Ehrhart, H., 2009, Assessing the relationship between democracy and domestic taxes in developing countries, Etudes et Documents E 2009.30, Centre d’Etudes et de Recherches sur le Développement International.
Eijffinger, S.C.W. and J. De Haan, 1996, The political economy of central bank independence, Special Papers in International Economics 19, May, Princeton University.
Epstein, G., 2006, Too much, too soon: IMF conditionality and inflation targeting, Bretton Woods Project, article available at: http://www.brettonwoodsproject.org/art-542599
Farvaque, E., 2001, Political determinants of central bank independence, Economic Letters 77, 131-135.
Fraga, A., Goldfajn, I. and A. Minella, 2003, Inflation Targeting in Emerging Market Economies, NBER Working Paper 10019, National Bureau of Economic Research, Cambridge.
Freedman, C. and D. Laxton, 2009, Why inflation targeting, IMF Working Paper, WP/09/86.
Gerlach, S., 1999, Who targets inflation explicitly?, European Economic Review 43, 1257-1277.
Gonçalves, C.E.S. and A. Carvalho, 2008, Who chooses to inflation target?, Economics Letters 99, 410-413.
Hallerberg, M., 2002, Veto players and the choice of monetary institutions, International Organization 56, 775-802.
Hu, Y., 2006, The choice of inflation targeting – an empirical investigation, International Economics and Economic Policy, 27-42.
International Monetary Fund (IMF), 2006, Inflation targeting and the IMF, Unpublished manuscript, Policy and Development Review Department, and Research Department, available at: http://imf.org/external/np/pp/eng/2006/031606.pdf
Jaimovich, D. and U. Panizza, 2010, Public debt around the world: a new dataset of central government debt, Applied Economics Letters 17, 19-24.
Joyce, P.J. and M. Nabar, 2009, Sudden stops, banking crises and investment collapses in emerging markets, Journal of Development Economics 90, 314-322.
Keefer, P., 2007, DPI 2006 – Database on Political Institutions: changes and variable definitions, Washington, DC: World Bank, December.
Keefer, P. and D. Stasavage, 2003, The limits of delegation: veto players, central bank independence and the credibility of monetary policy, American Political Science Review 97, 407-423.
Keefer, P. and D. Stasavage, 2002, Checks and balances, private information, and the credibility of monetary commitments, International Organization 56, 751-774.
Kisinbay, T., Shimizu, S., Nordstrom, A., Respreto, J., Roger, S. and M. Stone, 2009, The role of exchange rate in inflation-targeting emerging economies, IMF Occasional Paper 267.
Kohn, D.L., 2005, Comments on Marvin Goodfriend’s “Inflation targeting in the United States”, in: Bernanke B.S and M. Woodford (eds.), The Inflation targeting debate, University of Chicago Press, Chicago.
Lane, P., 1997, Inflation in open economies, Journal of International Economics 42, 327-347.
Levya, G., 2008, The choice of inflation targeting, Central Bank of Chile Working Paper 475.
Lin, S. and H. Ye, 2009, Does inflation targeting make a difference in developing countries?, Journal of Development Economics 89, 118-123.
Lohmann, S., 1998, Institutional checks and balances and the political control of the money supply, Oxford Economic Papers 50, 360-377.
Masson, P.R., Savastano, M.A. and S. Sharma, 1997, The scope for inflation targeting in developing countries, IMF Working Paper, WP/97/130.
Mishkin, F.S., 2004, Can inflation targeting work in emerging market countries?, NBER Working Paper 10646, National Bureau of Economic Research, Cambridge.
Mishkin, F.S., 2000, Inflation targeting in emerging-market countries, American Economic Review 90, 105-109.
Mishkin, F.S., 1996, Understanding financial crises: a developing country perspective, Annual World Bank Conference on Development Economics, 29-62.
Mishkin, F.S. and K. Schmidt-Hebbel, 2007, Does inflation targeting make a difference?, NBER Working Paper 12876, National Bureau of Economic Research, Cambridge.
Mishkin, F.S. and K. Schmidt-Hebbel, 2001, One decade of inflation targeting in the world: what do we know and what do we need to know?, NBER Working Paper 8397, National Bureau of Economic Research, Cambridge.
Moser, P., 2003, Checks and balances, and the supply of central bank independence, European Economic Review 43, 1569-1593.
Mukherjee, B. and D.A. Singer, 2008, Monetary institutions, partisanship, and inflation targeting, International Organization 62, 323-358.
Mundlak, Y., 1978, On the pooling of time series and cross section data, Econometrica 46, 69-85.
Pétursson, T., 2004, Formulation of inflation targeting around the world, Monetary Bulletin 6, Central Bank of Iceland, 57-84.
Posen, A.S., 1995, Declarations are not enough: financial sector sources of central bank independence, in NBER Macroeconomics Annual 1995, 253-274.
Posen, A.S., 1993, Why central bank independence does not cause low inflation: there is no institutional fix for politics, in R. O’Brien (ed.), Finance and the international economy, vol. 7, Oxford University Press, Oxford.
Reinhart, C.S. and K.S. Rogoff, 2004, The modern history of exchange rate arrangements: A reinterpretation, The Quarterly Journal of Economics 119, 1-48.
Romer, D., 1993, Openness and inflation: theory and evidence, The Quarterly Journal of Economics 108, 869-903.
Rose, A.K., 2007, A stable international monetary system emerges: inflation targeting is Bretton Woods, reversed, Journal of International Money and Finance 26, 663-681.
Schmitt-Grohé, S., 2005, Comments on Christopher A. Sims’s “Limits to inflation targeting”, in Bernanke B.S and M. Woodford (eds.), The inflation targeting debate, University of Chicago Press, Chicago.
Truman, E.M., 2003, Inflation targeting in the world economy, Institute for International Economics, Washington.
Tsebelis, G., 2002, Veto players: how political institutions work, Princeton University Press Princeton.
Walsh, C.E., 2005, Economic structure and monetary policy design, in Cho, L-J., Cho, D. and Y. Hyung (eds.), Macroeconomic Implications of Postcrisis Structural Change, Korean Development Institute.
Woo, J., 2001, Economic, political and institutional determinants of public deficits, Journal of Public Economics 87, 387-426.
World Bank, 2008, World Development Indicators, CD-ROM, Washington, DC: World Bank.
Yang, B., 2008, Does democracy lower growth volatility? A dynamic panel analysis, Journal of Macroeconomics 30, 562-574.