INFLATION TARGETING IN DEVELOPING ECONOMIES: CREDIBILITY, GOVERNMENT INFLUENCE, AND ITS EFFECTS ON INCOME DISTRIBUTION

Abstract

This study titled “inflation targeting in developing economies: credibility, government influence and its effects on income distribution” examines the political economy of inflation targeting in developing economies with a focus on institutional credibility, government influence, and distributional outcomes. While inflation targeting is widely promoted as a framework for achieving price stability, its effectiveness in developing contexts remains uneven due to structural and institutional constraints. This research adopts a qualitative research design, utilizing a comparative case study approach with Nigeria as the primary case. Data is drawn from secondary sources, including central bank reports, policy documents, international financial institution publications, and academic literature, and analyzed using thematic content analysis. The study finds that weak institutional credibility, characterized by limited central bank independence and inconsistent policy implementation, undermines the effectiveness of inflation targeting in Nigeria. The findings suggest that inflation targeting in Nigeria operates more as a constrained policy framework than a fully credible commitment mechanism. The study concludes that strengthening institutional capacity, improving fiscal discipline, and enhancing policy coordination are essential for improving the effectiveness and equity of inflation targeting in developing economies. By situating monetary policy within a broader political economy context, this study contributes to a more nuanced understanding of the challenges and limitations of inflation targeting in developing countries.