Macroeconomic Effects of Inflation Targeting: Evidence from the Middle and High-Income Countries

Abstract

By employing Propensity Score Matching analysis, this study aims first to show how inflation targeting affects macroeconomic indicators in middle and high-income countries, and second highlights whether the global financial crisis has created a change in the way that inflation targeting impacts on them. Results prove that adopting inflation targeting increases the real GDP and budget deficit, and decreases the current account deficit. However, its effect on inflation is puzzling. The high-income inflation targeters should be careful about implementing the strategy and inflation targeting should be accompanied by the fiscal policy either in middle or in high-income countries.

Keywords

• Inflation Targeting
• Propensity Score Matching
• Middle-Income Countries
• High- Income Countries
• Global Financial Crisis