Mollick, André VarellaTorres, René CabralCarneiro, Francisco G.2012-05-212012-05-212008-12https://hdl.handle.net/10986/6296This paper examines the effects of inflation targeting on industrial and emerging economies' output growth over the "globalization years" of 1986-2004. Controlling for trade openness and two indicators of financial globalization, the authors find systematic positive and significant effects of inflation targeting on real output growth. In dynamic models, the findings show strong output persistence in industrial economies, in which partial and full inflation targeting regimes have a positive long-run impact on growth. In emerging markets, only full inflation targeting policies have any output effect in the long-run. The results suggest that strict inflation targeting is needed to make the discipline effect of the disinflation process outweigh the output costs of promoting high interest rates to attract capital flows in a global world. These findings are robust to the treatment of endogenous globalization measures.CC BY 3.0 IGOACCOUNTINGASSETSBANK OPERATIONSBONDBUSINESS CYCLESBUSINESS ECONOMICSCAPITAL ACCOUNTCAPITAL ACCOUNT LIBERALIZATIONCAPITAL ACCOUNT OPENNESSCAPITAL ACCUMULATIONCAPITAL FLOWSCAPITAL GOODSCAPITAL INFLOWSCENTRAL BANKCENTRAL BANKSCOLLATERALCONTROL VARIABLESCORRELATION COEFFICIENTCORRELATION COEFFICIENTSCOUNTRY ECONOMICSCREDIBILITYCURRENCYDEBTDEBT MATURITYDEBT STRUCTUREDEPENDENT VARIABLEDESCRIPTIVE STATISTICSDEVELOPING COUNTRIESDEVELOPING ECONOMIESDEVELOPMENT ECONOMICSDIRECT INVESTMENTDISINFLATIONDOMESTIC SECURITIESDUMMY VARIABLEDUMMY VARIABLESECONOMIC GROWTHECONOMIC PERFORMANCEECONOMIC RESEARCHEMERGING ECONOMIESEMERGING MARKETEMERGING MARKET ECONOMIESEMERGING MARKETSEMERGING MARKETS ECONOMIESEQUATIONSEQUIPMENTEQUITY FINANCINGEQUITY MARKETERROR TERMEXCHANGE RATEEXCHANGE RATE TARGETINGEXCHANGE RATE VOLATILITYEXPLANATORY VARIABLEEXPLANATORY VARIABLESEXPORTSEXTERNAL ASSETSEXTERNAL POSITIONFEDERAL RESERVEFEDERAL RESERVE BANKFINANCIAL CRISESFINANCIAL DEVELOPMENTFINANCIAL FLOWSFINANCIAL INSTITUTIONSFINANCIAL INTEGRATIONFINANCIAL LIBERALIZATIONFINANCIAL MARKETSFINANCIAL OPENNESSFINANCIAL SECTORFINANCIAL SECTOR DEVELOPMENTFIXED EFFECTSFOREIGN ASSETSFOREIGN DIRECT INVESTORSFOREIGN INVESTORSGDPGDP PER CAPITAGLOBAL DISINFLATIONGLOBALIZATIONGROWTH RATEGROWTH RATESIMPORTSINCOMEINCOME GROWTHINDUSTRIAL COUNTRIESINDUSTRIAL ECONOMIESINDUSTRIAL ECONOMYINFLATIONINFLATION COMMITMENTINFLATION ENVIRONMENTINFLATION EXPECTATIONSINFLATION TARGETINGINFLATION TARGETING REGIMESINFLATION TARGETSINSTRUMENTAL VARIABLESINTEREST PARITYINTEREST RATEINTEREST RATESINTERNATIONAL BANKINTERNATIONAL ECONOMICSINTERNATIONAL FINANCIAL INTEGRATIONINTERNATIONAL FINANCIAL STATISTICSINTERNATIONAL MONEYINVESTMENT ASSETSINVESTMENT DECISIONSLIABILITYLIBERALIZATIONLIBERALIZATIONSLOCAL FINANCIAL MARKETSLONG-TERM DEBTMACROECONOMICSMATURITYMATURITY STRUCTUREMONETARY ECONOMICSMONETARY POLICIESMONETARY POLICYMONETARY POLICY REGIMESMONETARY REGIMESMONOPOLIESNOMINAL INCOMEOUTPUTOUTPUT GAPOUTPUT LOSSESOUTPUT PER CAPITAOUTPUT RATIOOUTPUT RATIOSPER CAPITA INCOMEPOLITICAL ECONOMYPOPULATION GROWTHPORTFOLIOPOSITIVE EFFECTSPOTENTIAL OUTPUTPRICE STABILITYPUBLIC FINANCEREAL EXCHANGE RATEREAL GDPREGRESSION ANALYSISRETURNSSECURITIESSERIAL CORRELATIONSTABLE INFLATIONSTOCHASTIC ERRORSTOCK MARKETSTOCKSSUM OF IMPORTSTRADE LIBERALIZATIONTRADE OPENNESSTRADE UNIONSUNCERTAINTYWEALTHWORLD MARKETWORLD MARKET INTEGRATIONWorld Bank10.1596/1813-9450-4791