Difference in intensity of exchange rate factors in countries with targeting inflation regime

A. Grebenkina and A. Khandruev
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A. Grebenkina: Russian Presidential Academy of National Economy and Public Administration, Moscow, Russia
A. Khandruev: Russian Presidential Academy of National Economy and Public Administration, Moscow, Russia

Journal of the New Economic Association, 2021, vol. 51, issue 3, 125-143

Abstract: The paper analyzes features of prime factors of nominal exchange rate in countries with inflation targeting regime and high cross-border financial openness. The paper aims to test the hypothesis about different strength of these factors in developed countries and emerging market economies (EMEs). Using a panel vector autoregressive model and panel data for 2010 - 1st half-year 2020 period for 9 developed countries and 10 EMEs, the paper estimates significance of factors from the side of global commodity and financial markets, as well as the side of national monetary policy. The paper finds some evidence of greater sensitivity of EMEs' nominal exchange rate to global commodity and financial market factors and a greater sensitivity of developed countries' nominal exchange rate to national monetary policy. The paper regards this result as an argument for EMEs' exchange rate policy specification, considering the necessity to cope with heightened exchange rate volatility in these countries under the influence of external factors.

Keywords: inflation targeting; nominal exchange rate factors; countries comparative analysis; PVAR-mode (search for similar items in EconPapers)
JEL-codes: C23 E52 F31 O57 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:nea:journl:y:2021:i:51:p:125-143

DOI: 10.31737/2221-2264-2021-51-3-6

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