Global diffusion, policy flexibility, and inflation targeting

Abstract

A diverse group of over 30 countries located all over the world -such as the UK, Colombia, and Ghana-introduced inflation targeting, which is a monetary policy that seeks to control inflation through a pre-announced target. Fully institutionalized democracies adopted the policy first because the core features of inflation targeting are consistent with the principles of a liberal democracy. But why was inflation targeting also introduced by less-democratic countries? This article develops the argument that decision makers of less-democratic countries became more likely to adopt inflation targeting when they observed that nearby countries increased the flexibility of the policy. The statistical analysis of data from 76 countries between 1989 and 2013 supports this hypothesis. The finding that the change of a policy toward a more flexible framework drives its global spread addresses a blind spot in the more recent policy diffusion literature.

The politics of policy diffusion

“…A certain institution, like central bank independence, or a specific policy, like inflation-targeting, may be considered as appropriate and legitimate, and therefore diffuse (McNamara 2002). However, several studies show that diffusing policies may have the same label, but they are implemented in localised versions (i.e., they are decoupled) (Meyer et al 1992;Rose 1993;Chorev 2012;Wasserfallen 2019). Meyer and Rowan (1977) have developed a seminal explanation for this, arguing that policy makers aim to conform to dominant international norms, and they take domestic constraints into account by implementing legislation that is tailored to their specific contexts.…”

Redefining Scientisation: Central Banks between Science and Politics

“…Since the 1990s, many Western central banks have adopted inflation targeting as their policy strategy (e.g., Best, 2019;Wasserfallen, 2019). This approach involves setting a specific inflation rate as a target and holding the central bank accountable for achieving this rate.…”