Does Inflation Targeting Always Matter for the ERPT? A robust approach
Antonia López Villavicencio () and
Marc Pourroy ()
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This paper estimates the effects of different forms of inflation targeting (IT) in the exchange rate pass-through (ERPT). To this end, we first estimate the ERPT for a large sample of countries using state-space models. We then consider the adoption of an inflation targeting framework by a country as a treatment to find suitable counterfactuals to the actual targeters. By controlling for self-selection bias and endogeneity of the monetary policy regime, we confirm that the ERPT tends to be lower for countries adopting explicit IT. However, we uncover that older regimes, adopting a range or point with tolerance band and keeping inflation close to the target, outperform other IT regimes. We also show that IT is effective even with a relatively high inflation target or low central bank independence.
Keywords: inflation targeting; exchange rate pass-through; propensity score matching; state-space model (search for similar items in EconPapers)
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Published in Journal of Macroeconomics, Elsevier, 2019, 60, pp.360-377. ⟨10.1016/j.jmacro.2019.04.004⟩
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Journal Article: Does inflation targeting always matter for the ERPT? A robust approach (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02082568
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