The Impact of Inflation Targeting on Public Debt: An Evidence from Propensity Score Matching Approach

This study uses the Propensity Score Matching (PSM) approach to examine the impact of adopting the Inflation Targeting (IT) policy on internal and external public debt both for the groups of advanced and developing economies. We investigate the matching results to estimate the Average Treatment Effect (ATE) and Average Treatment Effect on the Treated (ATT) by employing different matching methods of nearest-neighbor, radius, stratification, and kernel matching. Our results are robust and statistically significantly reveal that adopting the IT policy reduces external public debt both for developed and developing economies. Moreover, on average, the adoption of IT policy leads to a statistically significant reduction of internal public debt for developing economies.