The research aims to study the impact of inflation targeting (IT) on inflation volatility to compare with non-inflation targeting(non-IT) countries during the post- adoption period using the annual dataset from 1980 – 2018 of 186... more
The research aims to study the impact of inflation targeting (IT) on inflation volatility to compare with non-inflation targeting(non-IT) countries during the post- adoption period using the annual dataset from 1980 – 2018 of 186 countries among advanced and emerging-developing economies. Propensity score matching would be applied to find the impact of IT policy before and after the adoption period. Second, the difference-in-differences estimation model employed in analyzing the effects after the policy adoption of inflation targeting regime on reducing the inflation volatility. Our estimation results show that applying the DID method to the dataset, certainly, inflation targeting government does significantly reduce inflation volatility to compare with non- targeting countries. However, several countries suffer from hyperinflation. Hereafter we excluded outliers from the dataset and after found no significant reduction in inflation volatility. The reason behind inflation targeting did not significantly reduce inflation volatility after excluding hyperinflation episodes, because most of the central bank policies are having a similar objective in terms of achieving price stability. Moreover, for the effective implementation of IT policy: country economic base development, financial market development, and money market mechanism matter. JEL Codes Keywords Author's email E31, E52, E58, F59, F62 monetary policy, macroeconomic impact, inflation targeting salimovmuhammad@gmail.com
