Inflation targeting and real exchange rates in emerging markets
World Development, 2011•Elsevier
We investigate inflation targeting (IT) in emerging markets, focusing on the role of the real
exchange rate and the distinction between commodity and non-commodity exporters. IT
emerging markets appear to follow a “mixed strategy” whereby both inflation and real
exchange rates are important determinants of policy interest rates. The response to real
exchange rates, however, is more constrained than in non-IT regimes. We also find that the
response to real exchange rates is strongest in those countries following IT policies that are …
exchange rate and the distinction between commodity and non-commodity exporters. IT
emerging markets appear to follow a “mixed strategy” whereby both inflation and real
exchange rates are important determinants of policy interest rates. The response to real
exchange rates, however, is more constrained than in non-IT regimes. We also find that the
response to real exchange rates is strongest in those countries following IT policies that are …
We investigate inflation targeting (IT) in emerging markets, focusing on the role of the real exchange rate and the distinction between commodity and non-commodity exporters. IT emerging markets appear to follow a “mixed strategy” whereby both inflation and real exchange rates are important determinants of policy interest rates. The response to real exchange rates, however, is more constrained than in non-IT regimes. We also find that the response to real exchange rates is strongest in those countries following IT policies that are relatively intensive in exporting basic commodities; and present a theoretical model that explains these empirical results.
Elsevier
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