Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries

Juan Carlos Berganza () and Carmen Broto

No 1105, Working Papers from Banco de España

Abstract: Emerging economies with inflation targets (IT) face a dilemma between fulfilling the theoretical conditions of "strict IT", which imply a fully flexible exchange rate, or applying a "flexible IT", which entails a de facto managed floating exchange rate with FX interventions to moderate exchange rate volatility. Using a panel data model for 37 countries we find that, although IT lead to higher exchange rate instability than alternative regimes, FX interventions in some IT countries have been more effective to lower volatility than in non-IT countries, which may justify the use of "flexible IT" by policymakers.

Keywords: inflation targeting; exchange rate volatility; foreign exchange interventions; emerging economies (search for similar items in EconPapers)
JEL-codes: E31 E42 E52 E58 F31 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2011-04
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries (2012)
Working Paper: Flexible inflation targets, forex interventions and exchange rate volatility in emerging countries (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:1105

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