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Inflation Targeting and Exchange Rate Regimes in Emerging Markets
Author:
Mr. Christian H Ebeke
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Mr. Armand P Fouejieu
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https://orcid.org/0000-0002-2527-4601
Series:
IMF Working Papers
Volume/Issue:
Volume 2015: Issue 228
Language:
English
Publication Date:
28 Oct 2015
DOI:
https://doi.org/10.5089/9781513586267.001
ISBN:
9781513586267
ISSN:
1018-5941
Pages:
36
Keywords:
WP; IT country; adopting inflation targeting; inflation targeting increase; Inflation targeting; Exchange rate regime; Non-linearities; inflation targeting strategy; repesents inflation targeting observation; IT framework; inflation targeting arrangement; Exchange rate arrangements; Exchange rate flexibility; Exchange rates; Inflation; Global
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IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund