Credibility in emerging economies: Does inflation targeting matter?

In this paper we evaluate the role of inflation targeting (IT) in enhancing monetary policy credibility in emerging economies. We construct a time varying credibility index, and then carry out extensive testing in order to assess whether IT had a significant impact on monetary policy credibility. Our results confirm that credibility was on average lower for targets than non-targeters before the regime change, and show that the gap was closed after the adoption of IT. However, taking mean reversion into account, we find no significant evidence that IT bolstered credibility levels.