Econometric Analysis of the Currency Crisis as a Consequence of Inflation Targeting

Borivoje D. Krušković ()

Journal of Central Banking Theory and Practice, 2025, vol. 14, issue 1, 43-57

Abstract: This paper analyzes the unanalized topic in macroeconomic (monetary) politics, which is the emergence of the currency crisis as a consequence of targeting inflation. Many central banks adopted inflation targeting under a pressure from the IMF. Sudden depreciation of exchange rate which results from a fall of foreign exchange reserves to a critically low level (below an optimal level) leads to currency crisis due speculative attack. The most widely used model in the decision of creating process of monetary policy in inflation targeting regime is the macroeconomic model of a small open economy from the group New Keynesian model.

Keywords: inflation targeting; currency crisis; monetary strategy; foreign exchange reserves; New Keynesian model. (search for similar items in EconPapers)
JEL-codes: C22 E31 E52 E58 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:cbk:journl:v:14:y:2025:i:1:p:43-57

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