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year 15, Issue 54 (3-2023) |
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Impact of financial development and financial market fragility on the effectiveness of inflation targeting in developing countries
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Mohamad Feghhi Kashani1   , Abbas Shakeri1 , Hadi Pirdaye *1 , Elahe Sadat Portabataba'i1 |
| 1- University of Allameh Tabataba'i |
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Abstract: (482 Views) |
In this study, in order to investigate the impact of financial development and financial market fragility on the effectiveness of inflation targeting on the inflation rate, dynamic principal component analysis has been used to investigate the financial development index, and for The First Time, the price-to-earnings ratio (P/E) has been used as an index of financial market fragility. The findings indicate two prominent features regarding the impact of the inflation targeting monetary regime and the fragility of the financial market on the inflation level. First, the effect of the financial market fragility on the level of inflation has been "dependent on the monetary regime" governing the selected economies. Secondly, the inflation level implication of the inflation targeting monetary regime is "dependent on the state" of financial market fragility. The interaction of these two features, we see a kind of "threshold feature" regarding the influence of this monetary regime on the inflation level. More to the point, as to the financial market fragility, we see a kind of positive association between the level of inflation and the increase in the fragility of the financial market. Meanwhile, this positive association is more intense in the countries that adopt the inflation targeting monetary regime. However, concerning the cyclical risk of financial market fragility, the results generally show that if the financial market fragility is more than the market expected trend, it has a decreasing effect on inflation and the reverse holds true asymmetrically in terms of size.
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Article number: 5 |
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Full-Text [PDF 1651 kb]
(109 Downloads)
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Type of Study: Empirical Study |
Subject:
Monetary Policy, Central Banking, and the Supply of Money and Credit (E5)
Received: 2022/08/21 | Accepted: 2023/09/12 | Published: 2024/01/30
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