RIGHT ON TARGET: EXPLORING THE FACTORS LEADING TO INFLATION TARGETING ADOPTION

Authors

  • ANNA SAMARINA,

    1. Samarina: Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands. Phone 0031-503636084, Fax 0031-503637337, E-mail h.samaryna@rug.nl
    Search for more papers by this author
  • JAKOB DE HAAN

    1. De Haan: Faculty of Economics and Business, University of Groningen, PO Box 800, 9700 AV Groningen, The Netherlands; Economics and Research Division, De Nederlandsche Bank, PO Box 98, 1000 AB Amsterdam, The Netherlands; CESifo, Poschingerstr. 5, 81679 Munich, Germany. Phone 31 20 5245756, Fax 31 20 5242500, E-mail jakob.de.haan@rug.nl
    Search for more papers by this author
    • We thank Rob Alessie, Jan P.A.M. Jacobs, Harry Garretsen, Heiner Mikosch, the participants of BBQ Workshop 2012, and three anonymous referees for helpful comments and suggestions. The views expressed do not necessarily reflect the views of De Nederlandsche Bank.


Abstract

This paper examines which economic, fiscal, external, financial, and institutional characteristics of countries affect the likelihood that they adopt inflation targeting (IT) as their monetary policy strategy. We estimate a panel binary response model for 60 countries and two subsamples consisting of Organization for Economic Cooperation and Development (OECD) and non-OECD countries over the period 1985–2008. The findings suggest that past macroeconomic performance of a country, its fiscal discipline, exchange rate arrangements, as well as the structure and development of its financial system have a significant impact on the likelihood to adopt IT. However, the factors leading to IT adoption differ significantly between OECD and non-OECD countries. (JEL E42, E52)

Ancillary