Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries

Arbeitspapier

Emerging economies with inflation targets (IT) face a dilemma between fulflling the theoretical conditions of "strict IT", which implies a fully flexible exchange rate, or applying a "flexible IT", which entails a de facto managed floating exchange rate with forex interventions to moderate exchange rate volatility. Using a panel data model for 37 countries we find that, although IT lead to higher exchange rate instability than alternative regimes, forex interventions in some IT countries have been more effective in reducing volatility than in non-IT countries, which may justify the use of "flexible IT" by policymakers.

Object Details

• ISBN: 978-952-462-704-7
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: BOFIT Discussion Papers ; No. 9/2011

Classification and Topics

• Classification: Wirtschaft ; Price Level; Inflation; Deflation ; Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems ; Monetary Policy ; Central Banks and Their Policies ; Foreign Exchange
• Subject: Inflation targeting ; Exchange rate volatility ; Foreign exchange interventions ; Emerging economies

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Berganza, Juan Carlos ; Broto, Carmen
• Event: Veröffentlichung
• (who): Bank of Finland, Institute for Economies in Transition (BOFIT)
• (where): Helsinki
• (when): 2011

Further information

• Handle: http://hdl.handle.net/10419/212697
• Last update: 10.03.2025, 11:44 AM CET