Does Inflation Targeting Matter for Output Growth? Evidence from Industrial and Emerging Economies
This paper examines the effects of inflation targeting on industrial and emerging economies' output growth over the "globalization years" of 1986-2004. Controlling for trade openness and two indicators of financial globalization, the...
| Main Authors: | , , |
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| Format: | Policy Research Working Paper |
| Language: | English |
| Published: |
Washington, DC: World Bank
2012
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2008/12/10077499/inflation-targeting-matter-output-growth-evidence-industrial-emerging-economies http://hdl.handle.net/10986/6296 |
| Summary: | This paper examines the effects of
inflation targeting on industrial and emerging
economies' output growth over the "globalization
years" of 1986-2004. Controlling for trade openness and
two indicators of financial globalization, the authors find
systematic positive and significant effects of inflation
targeting on real output growth. In dynamic models, the
findings show strong output persistence in industrial
economies, in which partial and full inflation targeting
regimes have a positive long-run impact on growth. In
emerging markets, only full inflation targeting policies
have any output effect in the long-run. The results suggest
that strict inflation targeting is needed to make the
discipline effect of the disinflation process outweigh the
output costs of promoting high interest rates to attract
capital flows in a global world. These findings are robust
to the treatment of endogenous globalization measures. |
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