Financial Inclusion, Inflation Targeting and the Policy Rate : Evidence from Emerging Economies

The extent to which households are financially included may influence central banks’ operation of monetary policy. In such cases, authorities will not need to adjust interest rates as aggressively to key macro variables to have the necessary impact on the economy. Using data for 47 emerging and developing economies for 1995-2017, we show that the policy rate and the coefficients to the monetary policy rule are lower in the presence of financial inclusion. We also find that the existence of an inflation targeting regime has important associative as well as causal relationships with policy rates