JSPES, Vol. 33, No. 1 (Spring 2008)
pp. 71-83

Inflation Targeting Policies in Less-Developed Countries: Some Evidence and Potential

S.M. Ghazanfar and Candelaria L. Sevcik

University of Idaho

Inflation Targeting (IT) is a macro-monetary policy tool, originally introduced in New Zealand and now adopted by several countries, that can lead to relatively stable and low inflation rates through the adoption of an explicit inflation target, one that can, if successful, lead to enhanced credibility, transparency, and accountability. While noting some of the pros and cons, evidence reveals considerable success in various less-developed countries (LDCs) with this approach, though results with respect to DCs are rather mixed. IT success in the LDCs means reduced inflation rates and lower output volatility, and diminished inflationary expectations. The paper examines these aspects of inflation targeting and also discusses Chile’s experience with IT and the lessons from that experience that can be potentially useful for other LDCs.