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Interactions between monetary policy and exchange rate in inflation targeting emerging countries: the case of three East Asian countries

Siok Kun Sek ()

MPRA Paper from University Library of Munich, Germany

Abstract: This paper investigates empirically how the reaction of monetary policy to exchange rate has changed after the adoption of inflation targeting regime in three East Asian countries. Using a structural VAR and single equation methods, this study shows that the reactions of monetary policy to exchange rate shocks as well as CPI (demand shocks) and output (supply shocks) have declined under the inflation targeting environment. The policy function reacts weakly to the exchange rate movements before and after the financial crisis of 1997 in two out of the three countries.

Keywords: exchange rate; inflation targeting; policy reaction function (search for similar items in EconPapers)
JEL-codes: E52 E58 F41 (search for similar items in EconPapers)
Date: 2008, Revised 2008-12-09
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac, nep-mon, nep-opm and nep-sea
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