INFLATION TARGETING AND ECONOMIC GROWTH IN THE CESEE COUNTRIES

Abstract

The paper compares the economic performance of countries that apply the monetary regime of inflation targeting (IT) and countries that apply alternative monetary regimes in the CESEE (Central, Eastern, and Southeastern Europe) region. The paper aims to assess whether the IT monetary regime has contributed to greater positive effects on economic performance in the group of countries that use inflation targeting as a monetary strategy compared to other groups of countries with alternative monetary strategies. The methodology of comparison was applied, namely the statistical technique Difference in Difference (DID), according to Ball and Sheridan (2005) and Goncalves and Salles (2008). After the introduction of IT, there was a fall in inflation rates (but the significance of IT is artificial) and a reduction in the volatility of inflation and gross domestic product (GDP), leading to a stabilisation of economic growth. The results of the analysis indicate that during the period of analysis (1990–2020), there was an improvement in economic performance after the introduction of inflation targeting in the group of countries that use that monetary strategy, but also in other groups of countries. However, the results show that economic performance is a little better in the group of countries that applied inflation targeting as a monetary regime.