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 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.

Bibliographic Details

Main Authors:	Mollick, André Varella, Torres, René Cabral, Carneiro, Francisco G.
Language:	English
Published:	Washington, DC: World Bank 2008-12
Subjects:	ACCOUNTING, ASSETS, BANK OPERATIONS, BOND, BUSINESS CYCLES, BUSINESS ECONOMICS, CAPITAL ACCOUNT, CAPITAL ACCOUNT LIBERALIZATION, CAPITAL ACCOUNT OPENNESS, CAPITAL ACCUMULATION, CAPITAL FLOWS, CAPITAL GOODS, CAPITAL INFLOWS, CENTRAL BANK, CENTRAL BANKS, COLLATERAL, CONTROL VARIABLES, CORRELATION COEFFICIENT, CORRELATION COEFFICIENTS, COUNTRY ECONOMICS, CREDIBILITY, CURRENCY, DEBT, DEBT MATURITY, DEBT STRUCTURE, DEPENDENT VARIABLE, DESCRIPTIVE STATISTICS, DEVELOPING COUNTRIES, DEVELOPING ECONOMIES, DEVELOPMENT ECONOMICS, DIRECT INVESTMENT, DISINFLATION, DOMESTIC SECURITIES, DUMMY VARIABLE, DUMMY VARIABLES, ECONOMIC GROWTH, ECONOMIC PERFORMANCE, ECONOMIC RESEARCH, EMERGING ECONOMIES, EMERGING MARKET, EMERGING MARKET ECONOMIES, EMERGING MARKETS, EMERGING MARKETS ECONOMIES, EQUATIONS, EQUIPMENT, EQUITY FINANCING, EQUITY MARKET, ERROR TERM, EXCHANGE RATE, EXCHANGE RATE TARGETING, EXCHANGE RATE VOLATILITY, EXPLANATORY VARIABLE, EXPLANATORY VARIABLES, EXPORTS, EXTERNAL ASSETS, EXTERNAL POSITION, FEDERAL RESERVE, FEDERAL RESERVE BANK, FINANCIAL CRISES, FINANCIAL DEVELOPMENT, FINANCIAL FLOWS, FINANCIAL INSTITUTIONS, FINANCIAL INTEGRATION, FINANCIAL LIBERALIZATION, FINANCIAL MARKETS, FINANCIAL OPENNESS, FINANCIAL SECTOR, FINANCIAL SECTOR DEVELOPMENT, FIXED EFFECTS, FOREIGN ASSETS, FOREIGN DIRECT INVESTORS, FOREIGN INVESTORS, GDP, GDP PER CAPITA, GLOBAL DISINFLATION, GLOBALIZATION, GROWTH RATE, GROWTH RATES, IMPORTS, INCOME, INCOME GROWTH, INDUSTRIAL COUNTRIES, INDUSTRIAL ECONOMIES, INDUSTRIAL ECONOMY, INFLATION, INFLATION COMMITMENT, INFLATION ENVIRONMENT, INFLATION EXPECTATIONS, INFLATION TARGETING, INFLATION TARGETING REGIMES, INFLATION TARGETS, INSTRUMENTAL VARIABLES, INTEREST PARITY, INTEREST RATE, INTEREST RATES, INTERNATIONAL BANK, INTERNATIONAL ECONOMICS, INTERNATIONAL FINANCIAL INTEGRATION, INTERNATIONAL FINANCIAL STATISTICS, INTERNATIONAL MONEY, INVESTMENT ASSETS, INVESTMENT DECISIONS, LIABILITY, LIBERALIZATION, LIBERALIZATIONS, LOCAL FINANCIAL MARKETS, LONG-TERM DEBT, MACROECONOMICS, MATURITY, MATURITY STRUCTURE, MONETARY ECONOMICS, MONETARY POLICIES, MONETARY POLICY, MONETARY POLICY REGIMES, MONETARY REGIMES, MONOPOLIES, NOMINAL INCOME, OUTPUT, OUTPUT GAP, OUTPUT LOSSES, OUTPUT PER CAPITA, OUTPUT RATIO, OUTPUT RATIOS, PER CAPITA INCOME, POLITICAL ECONOMY, POPULATION GROWTH, PORTFOLIO, POSITIVE EFFECTS, POTENTIAL OUTPUT, PRICE STABILITY, PUBLIC FINANCE, REAL EXCHANGE RATE, REAL GDP, REGRESSION ANALYSIS, RETURNS, SECURITIES, SERIAL CORRELATION, STABLE INFLATION, STOCHASTIC ERROR, STOCK MARKET, STOCKS, SUM OF IMPORTS, TRADE LIBERALIZATION, TRADE OPENNESS, TRADE UNIONS, UNCERTAINTY, WEALTH, WORLD MARKET, WORLD MARKET INTEGRATION,
Online Access:	http://documents.worldbank.org/curated/en/2008/12/10077499/inflation-targeting-matter-output-growth-evidence-industrial-emerging-economies https://hdl.handle.net/10986/6296
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