Open AccessThe impact of inflation targeting framework on food price inflation: evidence from developing economies
Author(s) -
Abhijit M. Surya
Publication year - 2017
Publication title -
journal of governance and regulation
Language(s) - English
Resource type - Journals
eISSN - 2306-6784
pISSN - 2220-9352
DOI - 10.22495/jgr_v6_i4_p5
Subject(s) - economics , inflation targeting , monetary policy , inflation (cosmology) , monetary economics , developing country , robustness (evolution) , macroeconomics , biochemistry , chemistry , gene , economic growth , physics , theoretical physics
Inflation Targeting (IT) has gained much popularity in recent years, with fifteen countries formally adopting it as a monetary policy framework since 2000. However, in developing countries, where the contribution of food prices to headline inflation is generally higher than in advanced economies, the adequacy of an IT framework for curbing inflation is very much contested. In this paper, we use a difference-in-differences approach to evaluate the treatment effect of adopting IT. Controlling for reversion to the mean, we find that economies that function under an IT regime do no better than countries that use alternative policy instruments. We verify the robustness of these results using panel unit-root tests and find that food inflation rates converge across economies irrespective of the monetary policy framework implemented.