Inflation targeting and disinflation costs in emerging market economies

Martin Stojanovikj and Goran Petrevski

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we study whether adopting Inflation Targeting (IT) in Emerging Market Economies (EMEs) affects the output costs of disinflation, controlling for a number of additional factors. Based on a sample of 170 disinflation episodes in 44 EMEs over the 1970-2017 period, we provide strong evidence that adopting IT is associated with a higher sacrifice ratio in EMEs. In addition, we find that gradual disinflation may be less costly in EMEs. Moreover, we show that trade openness is associated with a lower sacrifice ratio, while both central bank independence (CBI) and external shocks have adverse effects on the sacrifice ratio. Our main findings are robust to alternative classifications of the IT regime, alternative definitions of disinflation episodes, different thresholds for high inflation, different peak levels of trend inflation rate, across various specifications of the empirical model, as well as for both the entire sample and the sub-sample covering the post-1990s period.

Keywords: inflation targeting; sacrifice ratio; disinflation; emerging market economies (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2020-03-02
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/115798/1/MPRA_paper_115798.pdf original version (application/pdf)

Related works:
Journal Article: Inflation targeting and disinflation costs in Emerging Market economies (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:115798

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().