Factors leading to inflation targeting - the impact of adoption

Abstract

This paper examines how the analysis of inflation targeting (IT) adoption is affected by the choice of the analyzed period. We test whether country characteristics influence the decision to apply IT differently before and after its adoption, using panel probit models for 60 countries over the period 1985-2008. Our findings suggest that there is a structural change after IT adoption, as the factors leading to adoption of IT differ significantly from those leading to its continuation. Thus, including the post-adoption period when estimating the factors of IT adoption leads to biased results when interested in the question as of why countries adopt IT.