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Exchange Rates, Price Levels, and Inflation Targeting: Evidence from Asian Countries

Weera Prasertnukul, Donghun Kim () and Makoto Kakinaka
Additional contact information
Weera Prasertnukul: Bank of Thailand
Donghun Kim: Yonsei University, http://www.yonsei.ac.kr/

No EMS_2010_03, Working Papers from Research Institute, International University of Japan

Abstract: This study examines how the adoption of inflation-targeting influenced exchange rate pass-through and volatility in four Asian countries (Indonesia, Korea, the Philippines, and Thailand) over the sample period of January 1990 to June 2007. We find that reforming policy by adopting inflation targeting generally helped reduce pass-through in Korea and Thailand, while the results are less clear in Indonesia and the Philippines. Still, the findings indicate that inflation targeting has caused a decline in exchange rate volatility in all four countries. The important lesson from the experiences of these Asian countries is that the adoption of inflation targeting contributes to achieving the ultimate goal of inflation stability through reducing exchange rate pass-through or variability.

Keywords: Inflation targeting; Exchange rates; Pass-through; Exchange rate volatility (search for similar items in EconPapers)
JEL-codes: E31 E52 F31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2010-03
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https://www.iuj.ac.jp/workingpapers/index.cfm?File=EMS_2010_03.pdf First version, 2010 (application/pdf)

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