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Inflation targeting and exchange rate regimes in emerging markets

Author

Listed:
  • Ebeke Christian

    (International Monetary Fund, 700 19th, NW, Washington, DC 20431, USA)

  • Fouejieu Armand

    (International Monetary Fund, 700 19th, NW, Washington, DC 20431, USA)

Abstract

This paper investigates the effects of the adoption of inflation targeting (IT) on the choice of exchange rate regime in emerging markets (EMs), conditional on certain macroeconomic conditions. Using a large sample of EMs and after dampening the endogeneity of the adoption of IT using a selection on observables, we find that IT countries on average have a relatively more flexible exchange rate regime than other EMs. However, the flexibility of the exchange rate regime shows strong heterogeneity among IT countries. IT countries with low trade and financial openness and with a large share of external debt exhibit a lower exchange rate flexibility than others. Moreover, the marginal effect of IT adoption on the exchange rate flexibility increases with the duration of the IT regime in place, and with the propensity scores to adopt it.

Suggested Citation

  • Ebeke Christian & Fouejieu Armand, 2018. "Inflation targeting and exchange rate regimes in emerging markets," The B.E. Journal of Macroeconomics, De Gruyter, vol. 18(2), pages 1-24, June.
    • Handle: RePEc:bpj:bejmac:v:18:y:2018:i:2:p:24:n:7
    DOI: 10.1515/bejm-2017-0146
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    Cited by:

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    2. Menna Bizuneh, 2022. "Are We Floating Yet? Duration of Fixed Exchange Rate Regimes," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 48(1), pages 63-89, January.
    3. Mishra, Akanksha & Dubey, Amlendu, 2022. "Inflation targeting and its spillover effects on financial stability in emerging market economies," Journal of Policy Modeling, Elsevier, vol. 44(6), pages 1198-1218.
    4. Yugang He & Zhuoqi Teng, 2024. "Navigating Uncharted Waters: The Transformation of the Bank of Korea’s Monetary Policy in Response to Global Economic Uncertainty," Mathematics, MDPI, vol. 12(11), pages 1-24, May.
    5. Adina Ionela Străchinaru & Bogdan Andrei Dumitrescu, 2019. "Assessing the Sustainability of Inflation Targeting: Evidence from EU Countries with Non-EURO Currencies," Sustainability, MDPI, vol. 11(20), pages 1-13, October.
    6. Harsha Paranavithana & Leandro Magnusson & Rod Tyers, 2020. "Transitions to inflation targeting: panel evidence," Applied Economics, Taylor & Francis Journals, vol. 52(59), pages 6468-6481, December.
    7. Yildirim, Zekeriya, 2022. "Global financial risk, the risk-taking channel, and monetary policy in emerging markets," Economic Modelling, Elsevier, vol. 116(C).
    8. Kiseleva, P. S., 2018. "Regional inflation in Russia and ways of controlling it," R-Economy, Ural Federal University, Graduate School of Economics and Management, vol. 4(2), pages 41-45.
    9. Sonan Memon & Irfan A. Qureshi, 2021. "Income inequality and macroeconomic instability," Review of Development Economics, Wiley Blackwell, vol. 25(2), pages 758-789, May.

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    More about this item

    Keywords

    exchange rate regime; inflation targeting; macroeconomic conditions;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • F3 - International Economics - - International Finance
    • F6 - International Economics - - Economic Impacts of Globalization

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