Abstract This study discusses recent experiences with inflation targeting (IT), the challenges that it faces since the global financial crisis, and ways to address them. The discussion is conducted from the perspective of upper middle-income countries. As background for the analysis, the study first provides a review of financial systems in middle-income countries or MICS (with a focus on the role of bank credit), the extent to which exposure to capital flows affects economic stability in these countries, and the link between excessive credit growth and financial crises. Then the study reviews the main features and evidence of the performance of inflation-targeting regimes in middle-income countries. It discusses a number of challenges that IT faces, including fiscal dominance

2013