Does Inflation Targeting in Asia Reduce Exchange Rate Volatility?

Alice Y. Ouyang and Ramkishen Rajan

International Economic Journal, 2016, vol. 30, issue 2, 294-311

Abstract: Inflation targeting has become a popular option among many developing economies, including those in Asia. Despite a gradual move towards inflation targeting, many Asian economies remain concerned about exchange rate variability. Motivated by this, this paper is interested in the impact of inflation targeting on real exchange rate volatility in the Asian economies. In particular, using a panel of developing countries that includes many from Asia for the period 2007--2012, the paper explores the impact of inflation targeting on real exchange rate volatility as well as in terms of its two component parts, i.e. relative tradable prices across countries (external prices) and the sectoral prices of tradables and non-tradables within countries (internal prices). The paper also compares the inflation and growth effects of inflation targeting regimes with non-inflation targeters.

Date: 2016
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DOI: 10.1080/10168737.2016.1148431

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