When an IT regime is adopted, there is concern about the ability of central bank
controls over the inflation rate in situations where there are external shocks (Galindo and
Ros, 2008). It is claimed that the cost of adopting IT would be higher for countries with
greater exposure to exchange rate volatility (Aghion et al., 2009). There are empirical
evidence that indicates IT serves to lower inflation in the long run and reduce their
impact from exchange rate shocks (Batini and Laxton, 2007; Mishkin and
Schmidt-Hebbel, 2007). However, Brito and Bystedt (2010) find no evidence that the IT
regime improves inflation and output growth in developing countries. Conversely, the
evidence shows lower output growth during IT adoption and that the cost of disinflation
has been high. It also claims that the previously reported effectiveness of IT in reducing
volatilities may have been overstated.