Impact of Inflation Targeting on External Debt: Evidence from Low-Income Countries
Hicham El Ouazzani
Profilo Orcid, Hicham Ouakil
Profilo Orcid, Abdelhamid Moustabchir
Profilo Orcid e Abdelaziz Elhebil
Profilo Orcid 
Pubblicato online: 10 giu 2025
Pagine: 114 - 136
Ricevuto: 24 giu 2024
Accettato: 07 apr 2025
DOI: https://doi.org/10.2478/foli-2025-0006
Parole chiave
© 2025 Hicham El Ouazzani et al., published by Sciendo
This work is licensed under the Creative Commons Attribution-ShareAlike 4.0 International License.
Research background
This study explores the impact of inflation targeting on external debt in low-income countries, filling a gap in understanding its effects on debt management in these countries.
Purpose
Our research aims to determine whether the adoption of inflation targeting can lead to a reduction in external debt for low-income countries, using a robust methodology that accounts for selection bias.
Research methodology
We use propensity score matching (PSM) to analyse data from 37 low-income countries between 1990 and 2020. Of these countries, 19 have adopted inflation targeting, while 18 have not, enabling a balanced comparison of the two groups.
Results
Our results indicate that inflation targeting leads to a significant reduction in external debt of 14.561% on average. This substantial reduction is attributed to enhanced monetary credibility and a reduced risk of default on public debt.
Novelty
This study enriches the literature by providing robust empirical evidence on the beneficial effects of inflation targeting in low-income countries. The study highlights its potential as a debt management tool and emphasises the importance of adapting economic policies to the specific context of each country.