Inflation Targeting and Real Exchange Rates in Emerging Markets

Joshua Aizenman (), Michael Mercier Hutchison () and Ilan Noy ()

No 14561, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We investigate inflation targeting (IT) in emerging markets, focusing on the role of the real exchange rate and the distinction between commodity and non-commodity exporters. IT emerging markets appear to follow a “mixed strategy” whereby both inflation and real exchange rates are important determinants of policy interest rates. The response to real exchange rates, however, is more constrained than in non-IT regimes. We also find that the response to real exchange rates is strongest in those countries following IT policies that are relatively intensive in exporting basic commodities; and present a theoretical model that explains these empirical results.

JEL-codes: E52 E58 F15 F3 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac, nep-mon and nep-opm
Date: 2008-12
Note: IFM ITI ME
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Journal Article: Inflation Targeting and Real Exchange Rates in Emerging Markets (2011)
Working Paper: Inflation Targeting and Real Exchange Rates in Emerging Markets* (2008)
Working Paper: Inflation Targeting and Real Exchange Rates in Emerging Markets (2008)
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