摘要：This paper investigates theoretically using an economic model whether inflation targeting policy is an optimum policy or not in developing countries, where central banks have engaged in quasi fiscal activities. Technically, the paper compares between two strategies; inflation targeting policy and Morris and Shin (2002a) strategy, in which the expected inflation rate is built based on external and internal signals. The result proves that inflation targeting policy is not an optimum under a dependent central bank. Agents in developing countries do not react to inflation targeting policy because of the high uncertainty level. They prefer to rely on external signals. Moreover, we prove that an effective inflation targeting policy requires more economic certainty and stability.
关键词：inflation targeting; asymmetric loss function; central bank's ability; quasi-fiscal activities; developing countries
