Politická ekonomie X:X

Towards External Debt Reduction through Inflation Targeting: An Empirical Evaluation of Middle-Income Countries

Abdelhamid Moustabchir ORCID..., Hicham El Ouazzani ORCID..., Hicham Ouakil ORCID..., Augustin Foster Chabossou ORCID...

This study analyzes the impact of inflation targeting on the external debt of middle-income countries using the propensity score matching method (PSM). The results indicate that the adoption of inflation targeting is associated with a notable decrease in external debt, with an average reduction estimated at approximately 15.16 percentage points. This reduction reflects the enhanced credibility of monetary policy, which lowers the risk of default on public debt. These findings suggest that inflation targeting can be a useful tool for managing external debt and alleviating pressures on public finances, but its effectiveness depends on its integration within a broader economic policy framework tailored to each country\'s specific conditions.

Keywords: Inflation targeting, external debt, middle-income countries, propensity score matching, macroeconomic policy

Received: April 30, 2024; Revised: January 5, 2025; Accepted: January 14, 2025; Prepublished online: November 7, 2025 

Download citation
  • BibTeX (.bib)
  • Bookends (.ris)
  • EasyBib (.ris)
  • EndNote (.enw)
  • EndNote 8 (.xml)
  • ISI WoS (.isi)
  • Medlars (.medlars)
  • Mendeley (.ris)
  • MODS (.xml)
  • Papers (.ris)
  • RefWorks (.txt)
  • RefManager (.ris)
  • RIS (.ris)
  • MS Word (.xml)
  • Zotero (.ris)
    • Open full article

    References

    1. Alesina, A., and Ardagna, S. (2010). Large changes in fiscal policy: taxes versus spending. Tax policy and the economy, 24(1), 35-68. Go to original source...
    2. Apeti, A. E., Combes, J. L., and Minea, A. (2023). Inflation targeting and fiscal policy volatility: Evidence from developing countries. Journal of International Money and Finance, 102996. Go to original source...
    3. Barro, R. J. (1996). Determinants of economic growth: A cross-country empirical study.
    4. Chinn, M. D., and Ito, H. (2006). What matters for financial development? Capital controls, institutions, and interactions. Journal of development economics, 81(1), 163-192. Go to original source...
    5. Dridi, I., and Boughrara, A. (2023). Flexible inflation targeting and stock market volatility: Evidence from emerging market economies. Economic Modelling, 126, 106420. Go to original source...
    6. El Ouazzani, H., Ouakil, H., and Moustabchir, A. (2023). A simulation of the macroeconomic effects of the Russia-Ukraine War on the Moroccan economy using the DSGE model. African Development Review.
    7. El Ouazzani, H., Ouakil, H., and Moustabchir, A. (2024a). Monetary policy and unemployment in Morocco: A DSGE model approach with labor market frictions and Nash wage bargaining. Journal of Quantitative Economics, 1-28. Go to original source...
    8. El Ouazzani, H., Ouakil, H., and Moustabchir, A. (2024b). Évaluation de l'impact du microcrédit sur la consommation des bénéficiaires au Maroc: Une approche d'appariement (PSM). Alternatives Managériales Economiques, 6(1), 718-735.
    9. El Ouazzani, H., Ouakil, H., and Moustabchir, A. (2024c). Monetary Policy and Economic Stability: a DSGE Approach to Trend Inflation in Morocco. Statistika: Statistics & Economy Journal, 104(4). Go to original source...
    10. Fabre, C., and Marsilli, C. (2021). Dette des pays émergents et en développement: panorama des années 1970 à la crise actuelle. Revue d'économie financière, (1), 23-44. Go to original source...
    11. Frankel, J. (2010). Monetary policy in emerging markets. In: Handbook of monetary economics (Vol. 3, pp. 1439-1520). Elsevier. Go to original source...
    12. Frankel, J. A., and Saravelos, G. (2010). Are leading indicators of financial crises useful for assessing country vulnerability? Evidence from the 2008-09 global crisis (No. w16047). NBER. Go to original source...
    13. Givord, P. (2014). Méthodes économétriques pour l'évaluation de politiques publiques. Économie et prévision, (1-2), 1-28. Go to original source...
    14. Heckman, J. J., and Vytlacil, E. (2001). Policy-relevant treatment effects. American Economic Review, 91(2), 107-111. Go to original source...
    15. Khan, M. S., and Ssnhadji, A. S. (2001). Threshold effects in the relationship between inflation and growth. IMF Staff papers, 48(1), 1-21. Go to original source...
    16. Lin, S., and Ye, H. (2009). Does inflation targeting make a difference in developing countries?. Journal of Development economics, 89(1), 118-123. Go to original source...
    17. Lin, S., and Ye, H. (2013). Does inflation targeting help reduce financial dollarization? Journal of Money, Credit and Banking, 45(7), 1253-1274. Go to original source...
    18. Minea, A., Tapsoba, R., and Villieu, P. (2021). Inflation targeting adoption and institutional quality: Evidence from developing countries. The World Economy, 44(7), 2107-2127. Go to original source...
    19. Mishkin, F. S., and Posen, A. (1998). Inflation targeting: lessons from four countries.
    20. Mishra, P., and Montiel, P. (2013). How effective is monetary transmission in low-income countries? A survey of the empirical evidence. Economic Systems, 37(2), 187-216. Go to original source...
    21. Moustabchir, A., and Ouakil, H. (2023). Vaccination, treatment and containment policy to reduce the effects of the COVID-19 pandemic in Morocco. African Development Review, 35(4), 351-364. Go to original source...
    22. Moustabchir, A., Ouakil, H., and El Ouazzani, H. (2023). Monetary policy through the pandemic loans instrument to address the effects of COVID-19: hybrid financial DSGE-SIR. Repères et Perspectives Economiques, 7(2).
    23. Moustabchir, A., Ouakil, H., El Ouazzani, H., and Lechheb, H. (2024). A DSGE model approach to examining the impact of the Russian-Ukrainian War and oil shocks on the Moroccan economy. African Development Review.
    24. Obstfeld, M., and Taylor, A. M. (2004). Global capital markets: integration, crisis, and growth. Cambridge university press. Go to original source...
    25. Ouakil, H., Lakhal, T., El Ouazzani, H., and Moustabchir, A. (2024c). Understanding the Role of Income in Personal Happiness: A Comprehensive PSM Analysis in the United States. The Pakistan Development Review, 399-416. Go to original source...
    26. Ouakil, H., Moustabchir, A., and El Ouazzani, H. (2024a). Unconventional Monetary Policy Response to Covid-19 and Its Impact on Inflation in Morocco. Statistika: Statistics & Economy Journal, 104(3). Go to original source...
    27. Ouakil, H., Moustabchir, A., Lechheb, H., and EL Ouazzani, H (2024b). Fiscal policy in the face of the health crisis: A simulation using a hybrid DSGE-SIR model. African Development Review.
    28. Petrevski, G. (2023). Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature. arXiv preprint arXiv:2305.17474. Go to original source...
    29. Reinhart, C. M., and Rogoff, K. S. (2010). Growth in a Time of Debt. American Economic Review, 100(2), 573-578. Go to original source...
    30. Roger, M. S., and Stone, M. M. R. (2005). On target? The international experience with achieving inflation targets. International Monetary Fund. Go to original source...
    31. Rosenbaum, P. R., and Rubin, D. B. (1983). The central role of the propensity score in observational studies for causal effects. Biometrika, 70(1), 41-55. Go to original source...
    32. Svensson, L. E. (1997). Inflation forecast targeting: Implementing and monitoring inflation targets. European economic review, 41(6), 1111-1146. Go to original source...
    33. Valogo, M. K., Duodu, E., Yusif, H., and Baidoo, S. T. (2023). Effect of exchange rate on inflation in the inflation targeting framework: Is the threshold level relevant? Research in Globalization, 6, 100119. Go to original source...

    This is an open access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License (CC BY NC ND 4.0), which permits non-comercial use, distribution, and reproduction in any medium, provided the original publication is properly cited. No use, distribution or reproduction is permitted which does not comply with these terms.


    Return