Browse

You are looking at 1 - 10 of 11 items for :

  • Kazakhstan, Republic of x
Clear All
Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

The exchange rate plays a more important role in monetary policy for emerging economies that have adopted inflation targeting than for their advanced economy counterparts. Inflation-targeting emerging economies generally have less flexible exchange rate arrangements and intervene more frequently in the foreign exchange market. The enhanced role of the exchange rate reflects these economies’ greater vulnerability to exchange rate shocks and their less developed financial markets. However, their sharper focus on the exchange rate may cause some confusion about the commitment of their central banks to the inflation target and may also complicate policy implementation. These tensions were heightened by the inflation pressures, greater exchange rate volatility, and financial stress arising from the global financial turmoil that began in mid-2007 and the subsequent economic crisis.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

The exchange rate plays a larger role in monetary policy for inflation-targeting emerging economies than for inflation-targeting advanced economies. Inflation-targeting emerging economies have less flexible exchange rate arrangements and intervene more frequently and less transparently. The exchange rate plays a more important role for a number of reasons, including high pass-through from changes in the exchange rate to inflation, the impact on output of relatively short-term exchange rate movements, balance sheet currency mismatches, underdeveloped financial markets, and lower overall policy credibility.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

This section addresses why the exchange rate plays a more important policy and operational role for emerging economies than for advanced economies. In short, the channels between the exchange rate and economic and financial performance tend to be larger and more uncertain for emerging economies. The following section models the stronger exchange rate channels, and the implications for implementation are addressed in Section V. This section is necessarily qualitative and draws on the research literature, the country and foreign exchange intervention case studies, and descriptive data.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

This section uses a model-based approach to evaluate the performance of different inflation-targeting approaches.9 First, a taxonomy of inflation-targeting approaches is developed, modifying the conventional approach to take more explicit account of the role of exchange rate considerations in monetary policy formulation. Then, the performance of these approaches is evaluated in different types of economies and for handling different types of shocks.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

This section chronicles exchange rate management practices of selected inflation-targeting emerging economies and emerging economies with other anchors. The case studies focus on recent episodes involving tension between the inflation objective and exchange rate practices and are not meant to provide up-to-date descriptions. The case study countries were chosen to cover the spectrum of inflation-targeting regimes in which the exchange rate plays an important role (open-economy inflation targeting, inflation targeting with an explicit exchange rate band, inflation targeting with an exchange rate policy instrument) as well as the spectrum of emerging economies with other anchors.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

This paper explores the role of exchange rates in emerging economies with inflation-targeting regimes, an issue that has become especially germane during the current episode of financial turmoil and volatile capital flows. Under inflation targeting, the interest rate is the main monetary policy tool for influencing activity and inflation, and there is little agreement about the appropriate role of the exchange rate.The exchange rate is a more important monetary policy tool for emerging economies that have adopted inflation targeting than it is for inflation-targeting advanced economies. Inflation-targeting emerging economies generally have less flexible exchange rate arrangements and intervene more frequently in the foreign exchange market than their advanced economy counterparts. The enhanced role of the exchange rate reflects these economies' greater vulnerability to exchange rate shocks and their less developed financial markets. However, their sharper focus on the exchange rate may cause some confusion about the commitment of their central banks to achieve the inflation target and may also complicate policy implementation. Global inflation pressures, greater exchange rate volatility, and the financial stresses from the global financial turmoil that began in mid-2007 are heightening these tensions.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

This section documents the role of foreign exchange market intervention in inflation-targeting policy implementation and makes some positive recommendations for inflation-targeting emerging economies. The previous section made the case that taking the exchange rate into account in the monetary policy rule can improve the macroeconomic performance of inflation-targeting emerging economies under certain circumstances. However, although appropriate macroeconomic circumstances are a necessary condition for a fully effective role for the exchange rate, they are not sufficient.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

This section addresses how the role of the exchange rate can be designed to facilitate the transition to inflation targeting for emerging economies. Many emerging economies with other anchors are transitioning or aiming to transition to an inflation-targeting framework (Stone, 2003; Roger and Stone, 2005). They operate with a flexible exchange rate and some sort of inflation objective, although the central bank is not held formally accountable and the priority of policy objectives can be unclear. The policy framework is relatively ad hoc in many respects, with the exchange rate playing an important yet poorly defined role. Compared with inflation-targeting economies, these economies’ policy frameworks are less amenable to modeling and pose a qualitatively different set of policy challenges. This section addresses how these countries can improve policy effectiveness and, ultimately, transition to inflation targeting.42

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

This section discusses the implications of the two recent global shocks for the role of the exchange rate in inflation-targeting emerging economies. The inflation episode of 2007–08 and the global financial and economic crisis that accelerated in late 2008 each serve in very different ways as severe stress tests of inflation-targeting frameworks. Broadly, these two episodes confirm the larger and more varied role played by exchange rate policy for inflation-targeting emerging economies than for inflation-targeting advanced economies. Furthermore, inflation targeting as a regime proved resilient to the inflation shocks of 2007–08. As of mid-2009, inflation-targeting economies had not made major adjustments to their regimes, although the global crisis was far from over.

Anna Nordstrom, Mr. Scott Roger, Mr. Mark R. Stone, Seiichi Shimizu, Turgut Kisinbay, and Jorge Restrepo

Abstract

The role of the exchange rate in the broad monetary framework for inflation-targeting emerging economies raises four questions, which are addressed in turn in this section: