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Inflation targeting adoption and institutional quality: Evidence from developing countries
Author(s) -
Minea Alexandru,
Tapsoba René,
Villieu Patrick
Publication year - 2021
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.13074
Subject(s) - robustness (evolution) , developing country , quality (philosophy) , matching (statistics) , inflation targeting , inflation (cosmology) , economics , propensity score matching , set (abstract data type) , monetary policy , public economics , monetary economics , macroeconomics , business , computer science , economic growth , medicine , biochemistry , chemistry , philosophy , physics , epistemology , pathology , theoretical physics , gene , programming language
Institutional quality is often emphasised as an engine of economic development in developing countries. However, most of the literature assumes that institutions are exogenous. In this paper, we adopt the opposite view, and study the way the design of the monetary regime, and specifically the adoption of an inflation targeting regime, can impact the quality of institutions. Using the propensity scores matching method, which allows controlling for self‐selection in policy adoption, along with a wide set of robustness checks, including GMM‐based estimations and controlling for unobserved heterogeneity, we find that the adoption of inflation targeting significantly improves the quality of institutions.