Inflation Targeting and Country Risk An Empirical Investigation

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 hypothesiz...

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Bibliographic Details
Main Author: Fouejieu, Armand
Other Authors: Roger, Scott
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2013
Series:IMF Working Papers
Subjects:
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
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651 4 |a United States 
653 |a Inflation 
653 |a Investment 
653 |a Return on investment 
653 |a Monetary economics 
653 |a Inflation targeting 
653 |a Deflation 
653 |a Debt Management 
653 |a Debt 
653 |a Monetary policy frameworks 
653 |a Exports and Imports 
653 |a Intangible Capital 
653 |a International economics 
653 |a International Lending and Debt Problems 
653 |a Debts, External 
653 |a External debt 
653 |a National accounts 
653 |a Sovereign Debt 
653 |a Price Level 
653 |a Saving and investment 
653 |a Investments: General 
653 |a Prices 
653 |a Macroeconomics 
653 |a Monetary policy 
653 |a Capacity 
653 |a Central Banks and Their Policies 
653 |a Capital 
653 |a Monetary Policy 
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520 |a 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