The Relationship Between Exchange Rates and Inflation Targeting Revisited

Sebastian Edwards

No 12163, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper deals with the relationship between inflation targeting and exchange rates. I address three specific issues: first, I analyze the effectiveness of nominal exchange rates as shock absorbers in countries with inflation targeting. This issue is closely related to the magnitude of the "pass-through" coefficient. Second, I investigate whether exchange rate volatility is different in countries with an inflation targeting regime than in countries with alternative monetary policy arrangements. And third, I discuss whether the exchange rate should play a role in determining the monetary policy stance under inflation targeting. An alternative way of posing this question is whether the exchange rate should have an independent role in an open economy Taylor rule.

JEL-codes: F02 F43 (search for similar items in EconPapers)
Date: 2006-04
New Economics Papers: this item is included in nep-cba, nep-fmk, nep-ifn, nep-mac and nep-mon
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (169)

Published as Mishkin, Frederic S. and Klaus Schmidt-Hebbel (eds.) Monetary Policy under Inflation Targeting, Series on Central Banking, Analysis, and Economic Policies, vol. 11. Santiago: Central Bank of Chile, 2007.

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Working Paper: The Relationship Between Exchange Rates and Inflation Targeting Revisited (2006)
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