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Inflation targeting and firm performance in developing countries

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  • Bambe, Bao-We-Wal
  • Combes, Jean-Louis
  • Kaba, Kabinet
  • Minea, Alexandru

Abstract

Using a panel of 31,027 firms in 47 developing countries over the period 2006-2020, this paper looks at the effects of inflation targeting on firm performance. Estimations performed using entropy balancing to address endogeneity in policy adoption reveal that inflation targeting significantly increases firm performance, mainly measured by sales growth and productivity growth. This effect is robust to a wide range of tests (including alternative models, measures, and samples), and may vary under different macroeconomic and firms' structural characteristics. Lastly, by looking at possible transmission channels, we reveal that these favorable effects seem related with the capacity of the inflation targeting framework to reduce macroeconomic instability.

Suggested Citation

  • Bambe, Bao-We-Wal & Combes, Jean-Louis & Kaba, Kabinet & Minea, Alexandru, 2024. "Inflation targeting and firm performance in developing countries," Journal of Economic Dynamics and Control, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:dyncon:v:163:y:2024:i:c:s0165188924000460
    DOI: 10.1016/j.jedc.2024.104854
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    More about this item

    Keywords

    Inflation targeting; Firm performance; Sales growth; Productivity growth; Macroeconomic (in)stability;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis

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