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Explicit and implicit targets in open economies

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  • Silvia Sgherri

Abstract

Under a flexible inflation targeting regime, should policymakers avoid any reaction to movements in the foreign exchange market? Using data for six advanced open economies explicitly targeting inflation, this article examines empirically whether real exchange rate disequilibria systematically affect the conduct of monetary policy. Estimates indicate that monetary policy responses in inflation-targeting, open economies have changed significantly, as the institutional framework for the conduct of monetary policy has evolved. In particular, an explicit target for core inflation and a greater use of the expectation channel of monetary policy appear to be the key features of the newest policy framework. In this context, central banks are unlikely to react to regular fluctuations in the exchange rate.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 40 (2008)
Issue (Month): 8 ()
Pages: 969-980

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Handle: RePEc:taf:applec:v:40:y:2008:i:8:p:969-980

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Cited by:
  1. Tony Cavoli & Ramkishen S. Rajan, 2006. "Inflation Targeting Arrangements in Asia: Exploring the Role of the Exchange Rate," SCAPE Policy Research Working Paper Series 0603, National University of Singapore, Department of Economics, SCAPE.
  2. Efrem Castelnuovo, 2004. "Regime Shifts and the Stability of Backward Looking Phillips Curves in Open Economies," Computing in Economics and Finance 2004 49, Society for Computational Economics.
  3. Rageh, Rania, 2010. "Interest rate rule for the conduct of monetary policy: analysis for Egypt (1997:2007)," MPRA Paper 26639, University Library of Munich, Germany.
  4. Seedwell Hove & Albert Touna Mama & Fulbert Tchana Tchana, 2012. "Terms of Trade Shocks and Inflation Targeting in Emerging Market Economies," Working Papers 273, Economic Research Southern Africa.

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