The choice of inflation targeting—an empirical inv

Authors: Yifan Hu

Publish Date: 2006/01/04

Volume: 3, Issue: 1, Pages: 27-42

PDF Link

Abstract

A growing number of countries have anchored their monetary policy to an explicit numerical rate or range of inflation since such an inflation targeting framework was first adopted by New Zealand in 1989 This paper empirically investigates economic structure and institutional factors associated with a country’s choice of inflation targeting using a dataset of 66 countries for the period of 1980–2000 It is found that a sound fiscal position is significantly and positively associated with the choice of inflation targeting framework the central bank is more likely to adopt inflation targeting with greater financial depth institutional capacity including central bank autonomy and flexible exchange rate regime is important for the choice of inflation targetingI am grateful to Edwin Truman for his valuable suggestions and to Matthew Canzoneri Carol Rogers Monty Graham Adam Posen Stefan Gerlach Petra Gerlach and other seminar participants and colleagues at the Institute for International Economics Hong Kong Monetary Authority and University of Hong Kong for their helpful comments The financial support from the Hong Kong Research Grant Council AOE/H05/99 is gratefully acknowledged All remaining errors are mine

Keywords: