Document Type

Article

Publication Date

2008

Abstract

This paper examines the effects of inflation targeting on industrial and emerging economies’ output growth over the “globalization years” of 1986-2004. Controlling for trade openness and two indicators of financial globalization, the authors find systematic positive and significant effects of inflation targeting on real output growth. In dynamic models, the findings show strong output persistence in industrial economies, in which partial and full inflation targeting regimes have a positive long-run impact on growth. In emerging markets, only full inflation targeting policies have any output effect in the long-run. The results suggest that strict inflation targeting is needed to make the discipline effect of the disinflation process outweigh the output costs of promoting high interest rates to attract capital flows in a global world. These findings are robust to the treatment of endogenous globalization measures.

Comments

Original published version available at https://doi.org/10.1016/j.jpolmod.2011.03.010

First Page

537

Last Page

511

Publication Title

Journal of Policy Modeling

DOI

10.1016/j.jpolmod.2011.03.010

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Finance Commons

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