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Finance and Credit
 

Macroeconomic effect of the transition to inflation targeting in developing countries

Vol. 21, Iss. 25, JULY 2015

PDF  Article PDF Version

Received: 10 March 2015

Accepted: 19 March 2015

Available online: 12 July 2015

Subject Heading: MONETARY ACCOMMODATION

JEL Classification: 

Pages: 41-54

Zubarev A.V. Russian Presidential Academy of National Economy and Public Administration (RANEPA), Moscow, Russian Federation
zubarev@ranepa.ru

Trunin P.V. Russian Presidential Academy of National Economy and Public Administration (RANEPA), Moscow, Russian Federation
pt@iep.ru

Subject The study seeks to find the impact of transition to inflation targeting on inflation and output growth. We analyze the effects of transition to the new regime of monetary policy in both developing and developed countries, with particular focus on the sample of countries where raw materials account for major portion of export. The subject has become especially important for the Russian economy due to the transition to the policy of floating exchange rate and inflation targeting pursued by the Central Bank of the Russian Federation.
     Objectives The goal of the study is to test the significance of the impact of the transition to inflation targeting on macroeconomic indicators like output growth rate and inflation, as well as their volatility, using the econometric analysis.
     Methods In this paper, we applied Arellano-Bond and Blundell-Bond instrumental variables estimators.
     Conclusions and Relevance The results show that transition to the inflation targeting reduces inflation and volatility of output growth. We found no significant effect of switching to the inflation targeting on output growth rates. Moreover, these results are valid for a group of countries specializing in the export of raw materials. The results may be useful for the Bank of Russia as an argument in favor of changing the monetary policy towards inflation targeting. The findings support the achievement of goals set by the inflation targeting policy. Thus, we can expect a positive effect on the Russian economy from the transition to this monetary policy regime.

Keywords: inflation targeting, output growth, inflation, volatility, instrumental variables

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