Assessing the Performance of Inflation Targeting Lite Countries

Abstract

This paper deals with what is referred to in the literature as the 'Inflation Targeting Lite' (ITL) countries. These are a category of emerging countries, whose main characteristics are that they are least developed and small economies that pursue IT. They use inflation targeting to define their monetary policy framework, but for a number of reasons they are not in a position to put top priority to IT in relation to other objectives. This paper deals with a set of ITL countries for which consistent data could be gathered, and for which a date for setting inflation targeting could be discerned. The object of the paper is to study the impact of IT on actual inflation and inflation expectations. We utilise intervention analysis to time series on inflation for a number of ITL countries, which have actually implemented IT. In doing so our main concern is to assess whether, due to the IT intervention, there has been a significant change in the trend corresponding to these series and the extent to which inflation rates have actually been 'locked-in' at low levels after the implementation of IT. Two major results emerge. The first is that ITL countries have been successful in 'locking-in' inflation rates. The second is that non-IT countries have also been successful in terms of the 'lock-in' effect. Our overall conclusion, then, is that other factors in addition to IT underpin the apparent success of the control of inflation.