Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies

Noura Abu Asab

doi:doi:10.11648/j.ijber.20200903.17

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Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies

Noura Abu Asab

Published in International Journal of Business and Economics Research (Volume 9, Issue 3)

Received: 16 April 2020 Accepted: 3 May 2020 Published: 27 May 2020

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Abstract

The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.

Published in	International Journal of Business and Economics Research (Volume 9, Issue 3)
DOI	10.11648/j.ijber.20200903.17
Page(s)	140-150
Creative Commons	This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.
Copyright	Copyright © The Author(s), 2020. Published by Science Publishing Group

Keywords

Inflation Targeting, Monetary Shocks, External Vulnerability, Interest Rate, Panel Data

References

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APA Style

Noura Abu Asab. (2020). Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. International Journal of Business and Economics Research, 9(3), 140-150. https://doi.org/10.11648/j.ijber.20200903.17

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ACS Style

Noura Abu Asab. Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. Int. J. Bus. Econ. Res. 2020, 9(3), 140-150. doi: 10.11648/j.ijber.20200903.17

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AMA Style

Noura Abu Asab. Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. Int J Bus Econ Res. 2020;9(3):140-150. doi: 10.11648/j.ijber.20200903.17

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@article{10.11648/j.ijber.20200903.17,
  author = {Noura Abu Asab},
  title = {Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies},
  journal = {International Journal of Business and Economics Research},
  volume = {9},
  number = {3},
  pages = {140-150},
  doi = {10.11648/j.ijber.20200903.17},
  url = {https://doi.org/10.11648/j.ijber.20200903.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20200903.17},
  abstract = {The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.},
 year = {2020}
}

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TY  - JOUR
T1  - Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies
AU  - Noura Abu Asab
Y1  - 2020/05/27
PY  - 2020
N1  - https://doi.org/10.11648/j.ijber.20200903.17
DO  - 10.11648/j.ijber.20200903.17
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 140
EP  - 150
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20200903.17
AB  - The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.
VL  - 9
IS  - 3
ER  -

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Author Information

Noura Abu Asab

Department of Economics, School of Business, University of Jordan, Amman, Jordan

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Noura Abu Asab. (2020). Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. International Journal of Business and Economics Research, 9(3), 140-150. https://doi.org/10.11648/j.ijber.20200903.17

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ACS Style

Noura Abu Asab. Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. Int. J. Bus. Econ. Res. 2020, 9(3), 140-150. doi: 10.11648/j.ijber.20200903.17

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AMA Style

Noura Abu Asab. Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies. Int J Bus Econ Res. 2020;9(3):140-150. doi: 10.11648/j.ijber.20200903.17

Copy | Download

@article{10.11648/j.ijber.20200903.17,
  author = {Noura Abu Asab},
  title = {Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies},
  journal = {International Journal of Business and Economics Research},
  volume = {9},
  number = {3},
  pages = {140-150},
  doi = {10.11648/j.ijber.20200903.17},
  url = {https://doi.org/10.11648/j.ijber.20200903.17},
  eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20200903.17},
  abstract = {The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.},
 year = {2020}
}

Copy | Download

TY  - JOUR
T1  - Inflation Targeting and World Monetary Shocks: Evidence from Developing Economies
AU  - Noura Abu Asab
Y1  - 2020/05/27
PY  - 2020
N1  - https://doi.org/10.11648/j.ijber.20200903.17
DO  - 10.11648/j.ijber.20200903.17
T2  - International Journal of Business and Economics Research
JF  - International Journal of Business and Economics Research
JO  - International Journal of Business and Economics Research
SP  - 140
EP  - 150
PB  - Science Publishing Group
SN  - 2328-756X
UR  - https://doi.org/10.11648/j.ijber.20200903.17
AB  - The paper assesses the co-movement of local and foreign interest rate for developing countries with a full-fledged inflation targeting framework during and after the 2008 financial crisis. A panel linear optimizing monetary model is estimated by the fixed effects with spatial correlation standard errors over quarterly span from Q12007 to Q2 2019. The results suggest that inflation targeters are highly vulnerable to external monetary shocks, even after years of notable efforts to de-dollarization and complete shift towards a full-fledged inflation targeting. From a regime evaluation prospective, the inflation targeters’ response to world monetary shocks is compared to that of a group of fixed exchange rate rule economies and managed exchange rate countries with other monetary regimes. The findings provide evidence that inflation targeting countries are not different in their interest rate response to world monetary shocks compared to non-inflation targeting countries’, and instead of having more flexibility, inflation targeters show stronger reaction to world monetary shocks. These results are found robust when generated out from different subsamples and under assumptions of strict and flexible inflation targeting and policy inertia. The findings indicate that adopting inflation targeting as a framework for monetary policy does not by itself support the overall macroperformance and independence of monetary policy or force continuing commitment to the inflation targeting conditions.
VL  - 9
IS  - 3
ER  -

Copy | Download