Inflation Targeting and Economic Growth in the Middle East and North Africa (MENA): empirical modeling using ARDL approach

Abstract

This paper analyses the relationship between Inflation Targeting and economic growth in 20 countries in the Middle East and North Africa (MENA) countries region (Algeria, Saudi Arabia, Palestinian Authority, Bahrain, Djibouti, United Arab Emirates, Egypt, Iraq, Iran, Jordan, Kuwait, Lebanon, Libya, Morocco, Mauritania, Oman, Qatar, Syria, Tunisia, and Yemen), using an Autoregressive Distributed Lag (ARDL) model over the period 2000-2020. An autoregressive distributed lag (ARDL) model is an ordinary least square (OLS) based model which is applicable for both non-stationary time series as well as for times series with mixed order of integration. The results show that Inflation Targeting can have several functions. It is a monetary policy framework based on an appropriate institutional architecture. The adoption of inflation targeting is often subject to a change in laws or administrative arrangements relating to the Central Bank. Inflation targeting might support economic growth by lowering inflation and volatility. However, monetary policy alone cannot drive growth. Inflation targeting might support economic growth by lowering inflation and volatility. Moreover, the results of econometric tests lead to convergent conclusions and argue for the existence of unidirectional causal relationships between economic growth and economic policy indicators.