The Unassuming Economist

From a paper by Yadavindu Ajit and Taniya Ghosh:

“This study examines the effects of inflation targeting on inflation levels, its volatility, and its persistence
in emerging market economies. To better estimate the dynamic treatment effects of inflation targeting,
the study uses a larger set of data, including 59 emerging market economies, an extended sample
spanning 1985-2019, and a methodology that takes into account the staggered adoption of inflation
targeting by these economies. Traditional models used in the literature failed to account for staggered
adoption, resulting in biased estimates. Inflation targeting has been shown to significantly reduce
inflation levels in emerging markets, especially when hyperinflationary economies are excluded. Results
indicate significant reductions in inflation three to four years after adoption. In comparison, the findings
for inflation volatility and persistence are more nuanced. Standard models indicate initial volatility
reductions, but models that account for staggered adoption show no significant long-term impact.
Moreover, inflation targeting has no significant impact on inflation persistence, even in more stable
environments. These findings highlight the effectiveness of using models that account for staggered policy adoption when evaluating long-term policy impacts, and they suggest that, while inflation targeting is a viable tool for reducing inflation in emerging markets, its broader effects on inflation volatility and persistence have been limited.”