Empirical analysis of the impact of inflation targeting on macroeconomic performance

Abstract

The research presented in this article aims to contribute to the current debate on the effectiveness of inflation targeting central banks. To do so, we propose to use double-difference models on a sample of 40 countries, including developed, emerging and developing countries, with annual data covering the years 1980-2022. In this respect, our results could be seen as further support for the existence of a relationship between the adoption of the inflation targeting strategy and the economic performance of countries using this method in the empirical literature. To this end, we demonstrate that the adoption of inflation targeting has a positive, and sometimes significant, impact on the economic performance of developed, emerging and developing countries. We can thus confirm that inflation targeting makes a significant contribution to price stability without causing substantial damage to economic output. However, we would point out that this monetary system only encourages such performance when combined with other factors.

Keywords: Inflation targeting, economic performance, credibility

Classification JEL : E31, P17

Paper type : Empirical Research