Living with flexible exchange rates: issues and recent experience in inflation targeting emerging market economies

Corrinne Ho and Robert McCauley

No 130, BIS Working Papers from Bank for International Settlements

Abstract: This overview paper examines two main issues. The first is why the exchange rate matters, especially for emerging market economies. The second is under what circumstances and how countries have dealt with the challenges posed by the exchange rate in recent years in the context of inflation targeting. We find that emerging market economies, being more exposed to the influence of the exchange rate, are likely to accord the exchange rate a bigger role in policy assessment and decision-making. However, even with the greater emphasis on the exchange rate, the emerging market economies under review have not attended to the exchange rate in a manner that contradicted their announced inflation commitments. Furthermore, recent experience shows that having to keep an eye on the exchange rate is also a fact of life in industrial economies, inflation targeting or not.

Keywords: monetary policy; inflation targeting; exchange rate; intervention; capital controls (search for similar items in EconPapers)
JEL-codes: E52 E58 F31 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2003-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (119)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:130

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