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Inflation Targeting and Country Risk: An Empirical Investigation
Author:
Mr. Armand P Fouejieu
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https://orcid.org/0000-0002-2527-4601
and
Mr. Scott Roger
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Series:
IMF Working Papers
Volume/Issue:
Volume 2013: Issue 021
Language:
English
Publication Date:
23 Jan 2013
DOI:
https://doi.org/10.5089/9781475554717.001
ISBN:
9781475554717
ISSN:
1018-5941
Pages:
30
Keywords:
WP; risk premium; country risk; country risk risk premium; debt; inflation targeting; external debt; inflation targeting country; announcement effect; country risk premia; adoption of inflation targeting; inflation targeting framework; Return on investment; Inflation; Monetary policy frameworks; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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The sovereign debt crisis in Europe has highlighted the role of country risk premia as a link between countries’ fiscal and external balances, financial conditions and monetary policy. The purpose of this paper is to estimate how adoption of inflation targeting (IT) affects spreads. It is hypothesized that country risk premia for IT countries (especially among emerging market economies) may be lower than for other countries owing to greater policy predictability and more stable long-term inflation. The findings suggest that IT reduces the risk premium, both through adoption of the IT regime, and through the observed track record in stabilizing inflation.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund