International Journal of Business and Economics Research

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Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies

Received: 16 April 2020    Accepted: 03 May 2020    Published: 27 May 2020
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Abstract

The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.

DOI 10.11648/j.ijber.20200903.17
Published in International Journal of Business and Economics Research (Volume 9, Issue 3, June 2020)
Page(s) 140-150
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2024. Published by Science Publishing Group

Keywords

Inflation Targeting, Monetary Shocks, External Vulnerability, Interest Rate, Panel Data

References
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Author Information
  • Department of Economics, School of Business, University of Jordan, Amman, Jordan

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  • APA Style

    Noura Abu Asab. (2020). Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. International Journal of Business and Economics Research, 9(3), 140-150. https://doi.org/10.11648/j.ijber.20200903.17

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    Noura Abu Asab. Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. Int. J. Bus. Econ. Res. 2020, 9(3), 140-150. doi: 10.11648/j.ijber.20200903.17

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    AMA Style

    Noura Abu Asab. Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. Int J Bus Econ Res. 2020;9(3):140-150. doi: 10.11648/j.ijber.20200903.17

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  • @article{10.11648/j.ijber.20200903.17,
      author = {Noura Abu Asab},
      title = {Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies},
      journal = {International Journal of Business and Economics Research},
      volume = {9},
      number = {3},
      pages = {140-150},
      doi = {10.11648/j.ijber.20200903.17},
      url = {https://doi.org/10.11648/j.ijber.20200903.17},
      eprint = {https://download.sciencepg.com/pdf/10.11648.j.ijber.20200903.17},
      abstract = {The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.},
     year = {2020}
    }
    

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    T1  - Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies
    AU  - Noura Abu Asab
    Y1  - 2020/05/27
    PY  - 2020
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    JF  - International Journal of Business and Economics Research
    JO  - International Journal of Business and Economics Research
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    PB  - Science Publishing Group
    SN  - 2328-756X
    UR  - https://doi.org/10.11648/j.ijber.20200903.17
    AB  - The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.
    VL  - 9
    IS  - 3
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