Inflation Targeting: An international comparison of policy determinacy

Abstract

This paper explores inflation targeting policy determinacy across sixteen economies explicitly following such rule. I find that these countries do not necessarily manage their monetary policy in a way that leads to determinacy, which is desirable from a welfare perspective. Data coming from developing economies tend to be less consistent with determinacy immediately after inflation targeting implementation, only increasing its "activeness" later in the period under scrutiny. Contrarily, developed economies tend to show a strong tendency towards determinacy in the first stage of inflation targeting implementation while showing an indeterminate solution after the target is achieved. I suggest a link between economic development and monetary policy effectiveness, which in turn is related with credibility.