Fed's Policy Changes and Inflation in Emerging Markets: Lessons from the Taper Tantrum

Antonia López-Villavicencio () and Marc Pourroy ()
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Antonia López-Villavicencio: GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université de Lyon - UL2 - Université Lumière - Lyon 2 - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique
Marc Pourroy: CRIEF [Poitiers] - Centre de recherche sur l'intégration économique et financière [EA 2249] - UP - Université de Poitiers = University of Poitiers

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Abstract: We use the taper tantrum to measure the effects of a sudden depreciation of the exchange rate. We treat this announcement in the United States of America as an exogenous shock in emerging markets and use a difference‐in‐differences approach. We show that, before the tantrum, the impact of exchange rate changes on inflation is low in both the control and the treatment groups. However, the tantrum increased the gap between groups and impacted inflation regardless of the exchange rate regime or central bank practices. Nevertheless, inflation in economies with flexible exchange rate, inflation target, or highly credible central bank is less exposed to depreciations.

Keywords: Inflation Targeting; Exchange Rate Regime; Exchange Rate Pass-Through; Emerging Market Economies; Taper tantrum (search for similar items in EconPapers)
Date: 2022
Note: View the original document on HAL open archive server: https://hal.science/hal-05455990v1
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Published in Journal of Money, Credit and Banking, 2022, 54 (4), pp.1099-1121. ⟨10.1111/jmcb.12803⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05455990

DOI: 10.1111/jmcb.12803

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