Previous research on inflation targeting (IT) has focused on high-income countries (HICs) and emerging market economies (EMEs). Only recently has enough data accumulated for the performance of IT in low-income countries (LICs) to be assessed. We show that IT has not so far been as effective in reducing inflation in LICs as in EMEs. Relatively weak institutions, a typical feature of LICs, help explain this result. Our interpretation is that poor institutions, leaving fiscal policy unconstrained, impair central banks’ ability to conduct monetary policy in a way consistent with IT.
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A revised version of this paper has been published in Review of Development Economics 24 (4) (November 2020), pp. 1529-1551.
Michael Bleaney, Atsuyoshi Morozumi and Zakari Mumuni
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