Does Inflation Targeting decrease Exchange Rate Pass-through in Emerging Countries ?
AbstractIn this paper, we empirically examine the effect of inflation targeting on the exchange rate pass-through to prices in emerging countries. We use a panel VAR that allows us to use the larger data set on twenty-seven emerging countries (fifteen inflation targeters and twelve inflation nontargeters). Our evidence suggests that inflation targeting in emerging countries has helped to reduce the pass-through to various price indexes (import prices, producer prices and consumer prices) from a higher level to a new level that is significantly different from zero. The variance decomposition shows that the contribution of exchange rate shocks to prices fluctuations is more important in emerging targeters compared to nontargeters, and the contribution of exchange rate shocks to price fluctuations in emerging targeters declines after adopting inflation targeting.
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Date of creation: May 2010
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Inflation targeting; exchange rate pass-through; panel VAR.;
Other versions of this item:
- Dramane Coulibaly & Hubert Kempf, 2010. "Does Inflation Targeting decrease Exchange Rate Pass-through in Emerging Countries ?," Documents de travail du Centre d'Economie de la Sorbonne 10049, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
- E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-07-17 (All new papers)
- NEP-CBA-2010-07-17 (Central Banking)
- NEP-MAC-2010-07-17 (Macroeconomics)
- NEP-OPM-2010-07-17 (Open Economy Macroeconomic)
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