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Title: The impact of financial development on the effectiveness of inflation targeting in developing economies
Authors: Ouyang A.Y.
Rajan R.S. 
Keywords: Financial development
Financial inclusion
Financial markets
Inflation targeting
Inflation variability
Issue Date: 2019
Publisher: Elsevier B.V.
Citation: Ouyang A.Y., Rajan R.S. (2019). The impact of financial development on the effectiveness of inflation targeting in developing economies. Japan and the World Economy 50 : 25-35. ScholarBank@NUS Repository.
Abstract: An ever-increasing number of developing economies with varied levels of financial development have adopted Inflation Targeting (IT) frameworks to guide monetary policy. Using a panel dataset of 54 developing economies over the period 1980 to 2015 (30 of which have IT frameworks), we re-visit the rather controversial issue of whether adoption of an IT framework leads to superior outcomes in terms of reducing inflation and its variability. After controlling for potential endogeneity and self-selection concerns of policy adoption, our main empirical finding is that IT frameworks appear to reduce inflation rates in developing economies regardless of the level of financial development, while it reduces variability of inflation rates only when we control for levels of financial market development. We further find that the effectiveness of IT framework on inflation is highly dependent on financial inclusion and bank characteristics, while the effect on inflation variability is more associated with components of capital market development. � 2019
Source Title: Japan and the World Economy
ISSN: 09221425
DOI: 10.1016/j.japwor.2019.03.003
Appears in Collections:Staff Publications

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