Inflation Targeting and Real Exchange Rates in Emerging Markets

Joshua Aizenman, Michael Hutchison and Ilan Noy

World Development, 2011, vol. 39, issue 5, 712-724

Abstract: Summary 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.

Keywords: inflation; targeting; Taylor; rule; real; exchange; rate; commodity; export (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (100)

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Related works:
Working Paper: Inflation Targeting and Real Exchange Rates in Emerging Markets* (2008)
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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Persistent link: https://EconPapers.repec.org/RePEc:eee:wdevel:v:39:y:2011:i:5:p:712-724

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