Flexible Inflation Targeting and Macroeconomic Performance: Evidence from ASEAN

The experience of flexible inflation targeting in ASEAN-5 has been favorable. The present paper shows improvements in macroeconomic outcomes consistent with the framework's mandated objectives: lower levels and volatility of inflation, more stable economic growth, and a well-functioning financial system. Using difference-in-difference approaches, we find that, for ASEAN-5 and developing countries, the inflation targeting framework mainly benefits adopters in terms of reducing inflation levels. In response to the challenges emanating from capital flow volatility and domestic financial imbalances, over the past 20 years, ASEAN-5 policy frameworks have continuously evolved to incorporate various policy tools. These include, among others, foreign exchange intervention, macroprudential policy, and capital flow measures. A multitude of policy tools is arguably one of the key factors contributing to sound macroeconomic outcomes during the post-targeting periods.