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Inflation targeting and the uncertainty level in developing countries

Osama D. Sweidan|Benjamin Widner Jr.
경제연구소 (Hanyang Economic Research Institute)|2014.08|Journal of Economic Research (JER)|제19권 제2호|pp. 137-170|DOI 10.17256/jer.2014.19.2.002

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키워드

inflation targetingdeveloping countriesasymmetric loss functioncentral bank s abilityquasi-fiscal activities
주제분류경제학

초록

This paper investigates theoretically using an economic model whether inflation targeting policy is an optimum policy or not in developing countries, where central banks have engaged in quasi fiscal activities. Technically, the paper compares between two strategies; inflation targeting policy and Morris and Shin (2002a) strategy, in which the expected inflation rate is built based on external and internal signals. The result proves that inflation targeting policy is not an optimum under a dependent central bank. Agents in developing countries do not react to inflation targeting policy because of the high uncertainty level. They prefer to rely on external signals. Moreover, we prove that an effective inflation targeting policy requires more economic certainty and stability.

Abstract

This paper investigates theoretically using an economic model whether inflation targeting policy is an optimum policy or not in developing countries, where central banks have engaged in quasi fiscal activities. Technically, the paper compares between two strategies; inflation targeting policy and Morris and Shin (2002a) strategy, in which the expected inflation rate is built based on external and internal signals. The result proves that inflation targeting policy is not an optimum under a dependent central bank. Agents in developing countries do not react to inflation targeting policy because of the high uncertainty level. They prefer to rely on external signals. Moreover, we prove that an effective inflation targeting policy requires more economic certainty and stability.

참고문헌 (51)

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HOW DO MIDDLE-INCOME COUNTRIES FARE UNDER AN INFLATION TARGETING REGIMENAJIB KHAN경제연구소 · Journal of Economic Development2022 · 제47권 제4호INFLATION COSTS, UNCERTAINTY COSTS AND EMERGING MARKETSSAMUEL SCHREYER, WILLIAM MILES경제연구소 · Journal of Economic Development2009 · 제34권 제2호Inflation Targeting and Predictive Power of Term Spreads이지영, 조성훈경제연구소 · Seoul Journal of Economics2014 · 제27권 제4호INFLATION UNCERTAINTY AND INFLATION: IMPLICATIONS OF ADJUSTMENT AND ECONOMIC RECOVERY PROGRAMS IN SUB-SAHARAN AFRICAHermann Sintim, Serapio Byekwaso사람과세계경영학회 · Global Business and Finance Review2006 · 제11권 제2호DOES INFLATION TARGETING MATTER FOR FOREIGN PORTFOLIO INVESTMENT: EVIDENCE FROM PROPENSITY SCORE MATCHINGADEL BOUGHRARA, ICHRAK DRIDI경제연구소 · Journal of Economic Development2017 · 제42권 제2호Monetary policy and central bank independence under endogenous conservatismAndrea Schneider, Michael Berlemann경제연구소 · Journal of Economic Research (JER)2014 · 제19권 제2호

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