Inflation Targeting and Exchange Rate Regimes in Emerging Markets

October 28, 2015

Preview Citation

Format: Chicago

Christian H Ebeke, and Armand P Fouejieu. Inflation Targeting and Exchange Rate Regimes in Emerging Markets, (USA: International Monetary Fund, 2015) accessed November 23, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper investigates the effects of the adoption of inflation targeting (IT) on the choice of exchange rate regime in emerging markets (EMs), conditional on certain macroeconomic conditions. Using a large sample of EMs and after controlling for the selection bias associated with the adoption of IT, we find that IT countries on average have a relatively more flexible exchange rate regime than other EMs. However, the flexibility of the exchange rate regime shows strong heterogeneity among IT countries depending on their degree of openness and exposure to FX risks. Moreover, we find that the marginal effect of IT adoption on the exchange rate flexibility increases with the duration of the IT regime in place, and with the propensity scores to adopt it.

Subject: Exchange rate arrangements, Exchange rate flexibility, Exchange rates, Foreign exchange, Inflation, Inflation targeting, Monetary policy, Prices

Keywords: Adopting inflation targeting, Exchange rate arrangements, Exchange rate flexibility, Exchange rate regime, Exchange rates, Global, Inflation, Inflation targeting, Inflation targeting arrangement, Inflation targeting increase, Inflation targeting strategy, IT country, IT framework, Non-linearities, Repesents inflation targeting observation, WP

Publication Details

Pages:

36
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2015/228
Stock No:

WPIEA2015228
ISBN:

9781513586267
ISSN:

1018-5941

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