Does Inflation Targeting Always Matter for the ERPT? A robust approach
Antonia López Villavicencio () and
Marc Pourroy ()
Working Papers from HAL
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: state-space model; propensity score matching; exchange rate pass-through; inflation targeting (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mon and nep-opm
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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:wpaper:hal-02082568
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