RIGHT ON TARGET: EXPLORING THE FACTORS LEADING TO INFLATION TARGETING ADOPTION

Anna Samarina and Jakob de Haan

Contemporary Economic Policy, 2014, vol. 32, issue 2, 372-389

Abstract: type="main" xml:lang="en">

This paper examines which economic, fiscal, external, financial, and institutional characteristics of countries affect the likelihood that they adopt inflation targeting (IT) as their monetary policy strategy. We estimate a panel binary response model for 60 countries and two subsamples consisting of Organization for Economic Cooperation and Development (OECD) and non-OECD countries over the period 1985–2008. The findings suggest that past macroeconomic performance of a country, its fiscal discipline, exchange rate arrangements, as well as the structure and development of its financial system have a significant impact on the likelihood to adopt IT. However, the factors leading to IT adoption differ significantly between OECD and non-OECD countries. (JEL E42, E52)

Date: 2014
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