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Does Inflation Targeting in Asia Reduce Exchange Rate Volatility?

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  • Alice Y. Ouyang
  • Ramkishen S. Rajan

Abstract

Inflation targeting has become a popular option among many developing economies, including those in Asia. Despite a gradual move towards inflation targeting, many Asian economies remain concerned about exchange rate variability. Motivated by this, this paper is interested in the impact of inflation targeting on real exchange rate volatility in the Asian economies. In particular, using a panel of developing countries that includes many from Asia for the period 2007--2012, the paper explores the impact of inflation targeting on real exchange rate volatility as well as in terms of its two component parts, i.e. relative tradable prices across countries (external prices) and the sectoral prices of tradables and non-tradables within countries (internal prices). The paper also compares the inflation and growth effects of inflation targeting regimes with non-inflation targeters.

Suggested Citation

  • Alice Y. Ouyang & Ramkishen S. Rajan, 2016. "Does Inflation Targeting in Asia Reduce Exchange Rate Volatility?," International Economic Journal, Taylor & Francis Journals, vol. 30(2), pages 294-311, June.
    • Handle: RePEc:taf:intecj:v:30:y:2016:i:2:p:294-311
    DOI: 10.1080/10168737.2016.1148431
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    References listed on IDEAS

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    Cited by:

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    2. Goran Petrevski, 2023. "Macroeconomic Effects of Inflation Targeting: A Survey of the Empirical Literature," Papers 2305.17474, arXiv.org.
    3. Harold Glenn A. Valera & Mark J. Holmes & Gazi M. Hassan, 2018. "Is inflation targeting credible in Asia? A panel GARCH approach," Empirical Economics, Springer, vol. 54(2), pages 523-546, March.
    4. Petrevski, Goran, 2023. "Determinants of Inflation Targeting: A Survey of Empirical Literature," EconStor Preprints 271121, ZBW - Leibniz Information Centre for Economics.
    5. Agus Salim & Kai Shi, 2019. "A Cointegration of the Exchange Rate and Macroeconomic Fundamentals: The Case of the Indonesian Rupiah vis-á-vis Currencies of Primary Trade Partners," JRFM, MDPI, vol. 12(2), pages 1-17, May.

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