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What to Target? Inflation or Exchange Rate
Author(s) -
Lin Shu,
Ye Haichun
Publication year - 2012
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.4284/0038-4038-78.4.1202
Subject(s) - exchange rate , economics , inflation (cosmology) , generalized method of moments , propensity score matching , inflation targeting , econometrics , matching (statistics) , monetary economics , sample (material) , real interest rate , inflation rate , panel data , monetary policy , statistics , mathematics , physics , chemistry , chromatography , theoretical physics
This study empirically compares, for the first time, the popular exchange‐rate–targeting regime with the recently emerged inflation‐targeting framework in developing countries. Applying a variety of propensity score matching methods and dynamic panel generalized method of moments (GMM) regressions to a sample of 50 developing countries for the years 1990–2006, we find strong and robust evidence that, compared to exchange‐rate targeting, inflation targeting leads to a significantly lower inflation rate, and the lower inflation rate does not come at a cost of slower growth.