Inflation Targeting and Fear of Floating in Brazil, Mexico and South Korea

Reginaldo Nogueira

Economia, 2009, vol. 10, issue 2, 195_209

Abstract: We present evidence on Fear of Floating (FF) practices before and after the adoption of Inflation Targeting (IT) for three emerging countries that faced important exchange rate crises in the 1990’s (Brazil, Mexico and South Korea). We start using the methodologies proposed by Calvo and Reinhart (2002) and Ball and Reyes (2008), and check the probabilities of observing small monthly exchange rate changes, combined with large movements in policy instruments (international reserves and interest rates), which should indicate some degree of exchange rate targeting. This initial exercise suggests a progress towards greater exchange rate flexibility after IT. We then use a VAR model to analyse the monetary policy response to exchange rate and inflation shocks, and detect a drastic reduction in direct intervention in the foreign exchange market after IT, accompanied by a stronger response to inflation. These findings are consistent with the IT framework, and suggest a reduced role for FF.

Keywords: Inflation Targeting; Fear of Floating (search for similar items in EconPapers)
JEL-codes: E31 E42 E52 E58 F31 F41 (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.anpec.org.br/revista/vol10/vol10n2p195_209.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anp:econom:v:10:y:2009:i:2:195-209

Ordering information: This journal article can be ordered from
Secretaria da ANPEC Rua Prof Marcos Valdemar de Freitas Reis s/n Campus do Campus do Gragoatá, Bloco F Niterói, RJ 24210-201 Brazil
http://www.anpec.org.br/revista/

Access Statistics for this article

Economia is currently edited by Joaquim Pinto de Andrade

More articles in Economia from ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics] Secretaria da ANPEC Rua Prof Marcos Valdemar de Freitas Reis s/n Campus do Campus do Gragoatá, Bloco F Niterói, RJ 24210-201 Brazil. Contact information at EDIRC.
Bibliographic data for series maintained by Rodrigo Zadra Armond ().