Centre for Finance, Credit and Macroeconomics (CFCM)

CFCM 18/08: Inflation targeting in low-income countries: Does IT work?


Previous research on inflation targeting (IT) has focused on high-income countries (HICs) and emerging market economies (EMEs). Only recently has enough data accumulated for the performance of IT in low-income countries (LICs) to be assessed. We show that IT has not so far been effective in reducing in inflation in LICs, unlike in EMEs. Weak institutions, a typical feature in LICs, help explain this result, particularly under fl oating exchange rate regimes. Our interpretation is that poor institutions, leaving fiscal policy unconstrained, impair central banks' ability to conduct monetary policy in a way consistent with IT.

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Michael Bleaney, Atsuyoshi Morozumi and Zakari Mumuni

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Posted on Wednesday 13th June 2018

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