Revamping Legal and Institutional Framework for the Management of Inflation Targeting in Developing Economies

Abstract

This paper examines the legal and institutional framework for the conduct of Inflation Targeting(IT) in developing and emerging economies using Nigeria as a test case. The main argument in favour of the efficiency of IT is that autonomy, transparency, and accountability lead to lower inflation and inflation variability. These are ingrained in the legal and institutional governance on the part of the central bank. The paper, therefore, attempts to find whether sound institutions and quality governance could make a difference in the management of IT that delivers results in developing countries. An exploratory method was employed to examine Nigeria’s legal and institutional framework for monetary policy. Evidence from the cross-country review of the legal framework that embodies provisions for monetary policy in Nigeria suggests that ambiguous legal provisions, low-quality governance, and potential coordination pitfalls threaten the IT frameworks that deliver results. It is recommended that developing and emerging economies like Ghana, Turkey, and South Africa, which are struggling with weak institutions and target overshoot, should embark on institutional revamping to optimise their legal and institutional framework to ensure efficiency in target setting, monitoring and evaluation.