The Effects of Inflation Targating on Macroeconomic Performance: Inflaction and Growth



The main purpose of this research has been to investigate whether inflation targeting improves macroeconomic performance as measured by the behavior of inflation, economic output and their variability among the countries employing inflation targeting. In this regard we have looked for empirical evidence in a world sample of 21 developed and developing inflation targeting countries before and after their adoption of inflation targeting and compared their performance to a control group of 33 developed and developing countries which did not employ inflation targeting. We followed previous research procedures by testing for systemic differences in macroeconomic variables such as inflation levels between inflation targeting and non-targeting countries compared to previous levels of that variable. Our evidence as related to the different control groups suggests that inflation targeting generally helps countries to improve macroeconomic performance:
- Inflation targeting helps countries achieve lower inflation and less variability
- Inflation targeting reduces variability of growth rate
- There is no obvious evidence about variability of growth rate
JEL Classification: E25 , E58