Effectiveness of inflation targeting in emerging economies

Abstract

The global focus of monetary policy shifted from multiple indicators approach in 1989 when New Zealand adopted the Inflation targeting framework of monetary policy. While the effectiveness of the new approach has been argued about multiple times in the context of developed countries, the literature lacks qualitative and quantitative research about the same in case of emerging economies. This paper argues that significant differences exist between developing and developed countries. This might call for differing approaches to monetary policy. The paper explores whether Inflation targeting is the right approach for developing economies through qualitative research and subsequent application of statistical techniques.