Open AccessInflation Targeting Monetary Policy and Macroeconomic Performance: The Case of Middle Income Countries
Author(s) -
Paul Owusu Takyi,
Richard Fosu
Publication year - 2019
Publication title -
applied economics and finance
Language(s) - English
Resource type - Journals
eISSN - 2332-7308
pISSN - 2332-7294
DOI - 10.11114/aef.v6i5.3788
Subject(s) - economics , inflation (cosmology) , monetary policy , inflation targeting , sample (material) , monetary economics , panel data , empirical evidence , instrumental variable , macroeconomics , econometrics , philosophy , chemistry , physics , epistemology , chromatography , theoretical physics
The number of studies investigating the effects of inflation targeting (IT) on inflation and macroeconomic variables has increased with the rising number of countries adopting IT. The empirical evidence has, however, failed to converge. In line with the need for more such studies, this paper uses a difference-in-differences (DID) model with dynamic panel fixed effect and instrumental variable (IV) techniques to estimate the effect of IT on inflation and economic growth for a sample of 40 middle-income countries. Generally, we find that the effects of IT on inflation is quantitatively large but statistically insignificant. We, however, find strong evidence that IT leads to higher growth in middle-income countries.