Overhaul of a Doctrine

Marjan Petreski ()

Eastern European Economics, 2013, vol. 51, issue 5, 46-68

Abstract: The aim of this paper is to empirically examine the effect of switching regimes, from exchange rate targeting to inflation targeting, on monetary policy conduct in developing economies. An augmented Taylor rule is estimated within a panel switching regression for a group of developing countries that have historically experienced such a switch and a group of comparable countries that in the same period continued to target the exchange rate. Results suggest that under inflation targeting, the investigated countries retained their focus on inflation, but their reaction to it moderated. The output gap and the change in the exchange rate are found to be not significant, suggesting that these countries likely implemented a monetary policy geared toward strict inflation targeting.

Date: 2013
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