Does Inflation Targeting Really Matter?

Abstract

We examine the performance stability of firms in inflation-targeting countries before and after the 2008 global financial crisis. We use the propensity score method to analyze and compare firms in inflation-targeting and non-inflation-targeting countries, including both developed and developing countries. The estimation results show that firms in inflation-targeting countries underperform in response to shocks. Our results suggest that inflation targeting does not necessarily mitigate an economy’s response to business cycle fluctuations. This implies that IT is not as effective as a monetary policy as expected from the theory.