PhD ceremony Ms. A. Samarina: Monetary policy strategies: abandonment, adoption, and performance

PhD ceremony: Ms. A. Samarina

Dissertation: Monetary policy strategies: abandonment, adoption, and performance

Promotor(s): prof. J. de Haan

Faculty: Economics

The choice of a monetary policy strategy has been an important topic in economic research and central banks’ policy making. Given that countries do not maintain one strategy at all times but transfer from one type of monetary strategy to another, one may wonder what drives their choice of a monetary policy strategy and what could be the effects of particular strategies on macroeconomic performance. This thesis focuses on analyzing two monetary policy strategies practiced by central banks, namely monetary targeting and inflation targeting. It investigates which macroeconomic, fiscal, external, financial, and institutional factors may influence the decision to abandon monetary targeting or to adopt inflation targeting. Additionally, the thesis conducts a comprehensive analysis of the effects of inflation targeting on inflation performance.

Samarina shows that countries that experience changes in their financial systems, including deregulation, liberalization, development, and dollarization are more likely to abandon the strategy of monetary targeting. The likelihood of a country to adopt inflation targeting is significantly affected by its macroeconomic performance, fiscal discipline, exchange rate arrangements, as well as characteristics of its financial system. The factors driving inflation targeting adoption are different from the factors leading to its continuation. Including the post-adoption period in the analysis of inflation targeting adoption leads to biased results. Countries with similar legal origins follow each other’s decisions to adopt inflation targeting, whereas geographical distance does not play a role in the analysis of spatial interdependence in monetary strategy choices. Inflation targeting decreases inflation in emerging and developing countries, while it has no significant effect on inflation in advanced countries.